With the holiday season in full swing this is typically the time of year when the real estate market slows down a lot. Add in high inflation and high interest rates and the slow-down is more extreme. Transactions year to date are down more than 22% vs. 2021. And November transactions were down more than 50% vs. November 2021.
One key driver: interest rates. This year 30-year mortgage rates have risen from ~3% in January to a high ~7% (mid-October to mid-November), before coming down a bit to around 6.5% this week. You can see in the graph below the effect of rising rates on activity. Note: my graph shows new pending transactions (not closed), so you can see the market reaction to higher rates.
Looking at closed transactions on a weekly basis, the trend started the year pretty consistent with previous years, but in late April the market slowed and has consistently underperformed. While in the first half of the year sales were down ~8%, in the second half of the year they are down more than 35%.
And when I look at this data by price range, transactions under 750K are down nearly 30% year to date, and those over 750K are down over 7%.
So all that gives you an indication of activity, but what about prices? Using MLS data, looking at single-family-residential (SFR) homes in the City of Austin, in November the median sale price declined year on year (November ’22 vs. November ’21). That is the first time that has happened in a very long time!
You can see that through the first half of the year there appeared to be strong year-on-year appreciation. But the gap between last year and this year has compressed in the 2nd half of the year, and finally in November, based on preliminary MLS data, prices declined some (~1.5%).
What drives prices down? Too many homes on the market, and too few buyers chasing them. Which is evident in these months of inventory numbers, where you can see a balanced market at 6 months vs. what we actually have, particularly in the higher price ranges.
What does that mean for the luxury home buyer?
There are more choices out there, and fewer buyers chasing them. That suggests there may be more flexibility from sellers on terms.
What does that mean for the luxury home seller?
There is a lot of competition. It is absolutely critical that your house stand out in order to entice buyers. Homes need to be in tip-top condition. I never recommend trying to guess a buyer’s tastes and remodel your house based on assumptions of what will appeal. The best approach is to shift to neutral colors and make sure that the house feels well-cared for.
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