2023 Forecasts

The 2023 real estate forecasts keep coming in.

With the radical change in market conditions, the annual statistics are going to look dramatically different from the more recent activity – look at these differences in home sales between La Jolla and Carlsbad.

NSDCC 2022 Annual Sales, and Sales Since Nov 1st:

Data Point
Jan 1-Dec 20
Nov 1-Dec 20
% Difference
Median LP
$2,292,500
$1,989,000
-13%
Median SP
$2,321,000
$1,890,000
-19%
Median DOM
15
28
+87%
Median SF
2,727sf
2,609
-4%
Median $/sf
$828/sf
$740/sf
-11%
Average $/sf
$970/sf
$826/sf
-15%

My guesses?

I’m predicting a +5% change in the current NSDCC median sales price of $1,890,000 which gets us back to almost $2,000,000. Combine the softer pricing with current seller disappointment and the damage has been done – the 2023 local inventory should be so low that it helps to create a floor in pricing.

Here are several more opinions:

https://www.forbes.com/sites/brendarichardson/2022/12/19/experts-predict-what-the-housing-market-will-look-like-in-2023/

NAR 2023 Forecast Summit

WASHINGTON (December 13, 2022) – Lawrence Yun, NAR chief economist and senior vice president of research, forecasts that 4.78 million existing homes will be sold, prices will remain stable, and Atlanta will be the top real estate market to watch in 2023 and beyond. Yun unveiled the association’s forecast today during NAR’s fourth annual year-end Real Estate Forecast Summit.

Yun predicts home sales will decline by 6.8% compared to 2022 (5.13 million) and the median home price will reach $385,800 – an increase of just 0.3% from this year ($384,500).

“Half of the country may experience small price gains, while the other half may see slight price declines,” Yun said. “However, markets in California may be the exception, with San Francisco, for example, likely to register price drops of 10–15%.”

(more…)

Ivy

Ivy covers all the topics in this recent interview. The most interesting was her graph above that shows how much quicker sales have declined this year, compared to the last downturn.

She is expecting -12% in national pricing, and -20% in sales next year.

The different topics are identified in the red line at the bottom of the YouTube, and I started at Pricing:


San Diego is #97

Realtor.com is forecasting that the San Diego-Carlsbad metro area will have prices dropping 27% in 2023, but also conclude that fewer sales (-23.7%) will make our area more affordable. They combine the two and call it +3.6% combined growth.

They base their forecast on the lack of affordability, which ignores how many, if not most, buyers are using a hefty down payment to keep their monthly payments more reasonable.

If there was a severe price dump in 2023 like they are describing, the sellers wouldn’t go for it, and the inventory would dry up.  Just about every potential seller has to be thinking that they have already given up a certain percentage of their equity in 2022 (off their inflated sense of value), and waiting it out sounds way better than coughing up another 20%.

But this is the type of garbage that could get into people’s head, and whether it’s realistic or not doesn’t matter as much as the perception. Thanks Realtor.com!

https://www.realtor.com/research/top-housing-markets-2023/

2023 Pricing Forecasts

Guesses of the percentage change in the 2023 national home pricing from today’s free WSJ article:

NAR: +1.2%

NAHB: +0.7%

Fannie Mae: -1.5%

Goldman Sachs: -7.5%

Ivy Zelman: -12% (peak-to-trough in late 2024)

John Burns: -20% (peak-to-trough in late 2024)

KPMG: -20%

The article doesn’t cover any new ground because nobody wants to commit to how this plays out.

But I’ll give you my opinion.

Prices will keep declining until realtors tell their sellers that they need to sell in the first week or two on the market, or get lowballed.  To do so, they need to make their home look spectacular, price it attractively, and make it easy to show. To really improve your chances, offer a competitive commission rate to buyer-agents. Then the realtor needs to employ terrific salesmanship, and find a qualified buyer quickly.

It’s that simple!

2023 Forecast – JtR

Yesterday, I offered my take on pricing for the San Diego 2023 real estate market.

For those who don’t watch videos, I said the overall median sales price will be down 3% next year, with the superior-home sales causing a +5% median sales price among themselves. Where the line is drawn between superior and inferior homes will be interesting!

2023 Forecast

In this episode of the Top of Mind podcast, Mike Simonsen sits down with Rick Palacios Jr., Director of Research and a Managing Principal at John Burns Real Estate Consulting, to talk about what to expect in the real estate market in 2023.

Rick discusses the company’s latest research on homebuilder sentiment, shares their latest forecast for home prices and the economy, and talks about some secret signals to watch for changes in the market.

About Rick Palacios Jr.

Rick Palacios Jr.

Rick Palacios Jr. is the Director of Research and a Managing Principal at John Burns Real Estate Consulting, where he oversees all research pertaining to the US economy, for-sale housing, and rental markets.

Rick has 15 years of experience in residential real estate and economic research, originally joining John Burns Real Estate Consulting in 2006 and then rejoining the company in 2014 after working as a home builder Equity Research Associate at Morgan Stanley in New York. He has also worked as an Analyst at the Milken Institute, an economic think tank.

Rick holds a BA from the University of California, Irvine, and an MS in real estate economics and finance from the London School of Economics.

Here’s a glimpse of what you’ll learn:

  • Why new home construction might accelerate the housing market slump
  • How much home prices are likely to decline in the next two years
  • The leading indicators (and secret signals!) to watch for changes in the market
  • What’s happening with the second home market now
  • The surprising impact of ARMs in this cycle

Seller Hesitancy Will Persist

Every once in a while, a sliver of truth slips into the mainstream media articles.

After the usual negativity spewed throughout the front-page UT article about the local Case-Shiller Index declining at one of the worst rates of any town in America, this quote appears at the bottom:

Zillow senior economist Nicole Bachaud wrote in an analysis of the report that sellers’ hesitancy to put homes up for sale might mean prices won’t change that much.

“Would-be sellers are sticking their ground and holding tight to the inventory they currently own,” she wrote. “As a result, prices might not continue to plunge down as much as some projections anticipate.”

Nicole has been with Zillow since 2019 and a senior economist since August.  Kudos to her for stating what all other economists are ignoring, like Mark Zandi and the other clowns who have decades of experience and keep telling people that real estate will be crushed any minute now.

I have a real problem with the common belief that we can’t predict the future.

I guarantee you that our local inventory in 2023 will be the lowest on record, and will be the major driver of market activity.  How do I know? In all other previous downturns, the banks drove the market by dumping foreclosures for whatever the market would bear. But today, all we have is forever-home owners who are locked into a low-rate mortgage.

I will present evidence too. To demonstrate how potential home sellers are reacting to higher rates, consider the number of NSDCC listings that hit the market between September 1st and November 30th, which was when mortgage rates rose into the 6-plus range.  Once homeowners think it’s a bad market, they DON’T PANIC, and instead, they wait it out.

NSDCC New Listings Between September 1st and November 30th:

2007: 1,140

2008: 1,146

2009: 1,064

2010: 1,112

2011: 1,094

2012: 921

2013: 998

2014: 1,004

2015: 1,072

2016: 1,052

2017: 939

2018: 1,099

2019: 990

2020: 1,072

2021: 644

2022: 523

The last time everyone thought it was a terrible time to sell was in the 2008-2009 era – and even then we had 1,000+ listings.

We have NEVER been in this environment before with so few choices.  The ultra-low inventory is going to continue into 2023 and even if the Fed eases up and mortgage rates end up in the 5s, potential sellers are going to wait until the coast is clear, and everyone is talking about bidding wars again. GUARANTEED!

As a result, home prices will remain elevated.

Turkey Talking Points

Yesterday I was delivering pies throughout North County, and visiting with our great supporters – who were mostly past clients.  Predictably, the conversation turns to real estate, and observations about what’s going on in the market, now and in the future.

In case the subject comes up at your Thanksgiving, here are things we discussed:

  • Sales are down, but they aren’t zero.  There are roughly 400 houses for sale between La Jolla and Carlsbad, and the vast majority have been languishing on the market.  But at least 100 of them find a way to close escrow every month – and they tend to be the spectacular homes that are priced attractively.
  • Sales are being hampered by the light inventory.  The number of listings are 40% lower than in 2019, and next year I expect there will be the same or fewer homes for sale as sellers decide to wait until the “market gets better”.

  • Mortgage rates in the 5s are tolerable, and above that is problematic. Higher rates don’t only make homes less affordable – they also cause buyers to have a psychological expectation that sellers should come off their price.  The higher rates go, the more standoff there will be between buyers and sellers.
  • To get deals, the buyers have to cause them – and they are happening. We saw how two sales near my latest listing knocked off more than 10%, and here’s another one from yesterday:
  • I am re-examining one of my favorite seller slogans from many years ago; I’m Not Giving It Away.  Back when potential sellers had little, if any, equity, they would fight like crazy just to make sure they came out of escrow with at least enough for a steak dinner.  But everyone has gobs of equity now….and those who need to move bad enough are giving up decent chunks of it.  It means we could have a much faster decline in pricing than ever before.
  • I am still convinced that by March/April, the spring selling season will kick in and homes will be selling briskly for all the money. It’s likely that we’ll get off to a slow start as both sellers and buyers wait for someone else to go first, but by the end of March or April we will see bidding wars again.
  • Realtors are woefully ill-equipped to handle these conditions.  They have no strategies for a soft market and are very reluctant to price aggressively or reduce a list price properly.  Here is a discussion of typical agent comments.

The blog is picking up momentum, which hopefully means more people are looking to get better-educated about the market conditions, which is encouraging:

Thank you for being here!  I appreciate all of you and Happy Thanksgiving!

Try out Grandma Klinge’s pumpkin bread (mastered by Natalie) from the Compass cookbook:

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