Last week there was a lot of buzz about a Goldman Sachs forecast predicting that several major markets in the US, including Austin, “will likely grapple with peak-to-trough declines of over 25%”.
I don’t know exactly how they came up with that, but I have an idea. I pulled MLS data back to 2004 and looked at median sold prices by year. From 2004 to 2019, appreciation worked out to roughly 5.5% annually. If I take the 2019 median sold price and apply the same 5.5% appreciation rate to 2020-2022, then in 2022 the median sold price should be around 481K. But it was actually 650K, which would require a roughly 26% drop to get back in line with historical appreciation rates.
I don’t think that takes into account the things that support prices: strong job growth (creates increased demand) and low inventory (results in lower supply). Those pressures will continue to support prices at what are still historically low interest rates. I am not suggesting that prices will continue to skyrocket, or even stay as high as they are, but it seems unlikely that prices could drop that much in what remains a very hot market (exiting January there was ~4.5 months of inventory, and remember anything under 6 months is traditionally viewed as a seller’s market).
January is always a slow month, which reflects December buyer activity. December pendings were down -22% vs. December ’21. January ‘23 closed transactions were down significantly vs. January 2022, nearly -35%.
New listings were down throughout the fall, but jumped in January, up 10% vs. January 2022. Anecdotally, I heard about a lot of listings in the fall being postponed in hopes that 2023 would be a more favorable market. We could see an increase in new listings coming on the market this spring in anticipation of a more traditional seasonal upswing.
New pendings in January were up between 25-30% over December 2022, but that is almost the exact same monthly increase from December 2021 to January 2022. Year-on-year growth is probably more helpful to look at, and that was down -22%.
It is too early to tell what 2023 is going to look like, but so far the early indications are that the market is continuing to normalize. Price appreciation has declined, inventory has risen, and homes are taking longer to sell (median days on market in January was 57 days, vs. 12 in January ’22 and 5 in ’21).
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 or extensively 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 looks and feels well-cared for.
Trying to make sense of the market? Let me help! Contact me for more information and market analysis, and how to best go about buying or selling a home (or both) in this market!
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