The 2023 Spring housing market is underway. While there is no official start date, traditionally the Spring housing market begins in February with the kick-off on Super Bowl Sunday. If you have been on the sidelines and are now ready to embark on your home buying journey, you may be wondering what is happening on a hyper-local basis. You may even be thinking that the real estate market is now tipped in your favor as a home buyer. Curious to know what to expect in the 2023 housing market? Read on. The housing data is unmistakably clear.
It’s All About the Inventory
To give you a sense of how the 2023 real estate market will unfold, we need to take a look back and see how inventory is trending. The real estate market is inventory driven. You see, how inventory goes, is how the market will go.
While it’s been all over the media that inventory levels are “down” across the country, the degree to which they are down varies by region. In some areas, inventory is down significantly, while in others, it is only slightly down. In addition, the type of inventory that is available also varies by region. For example, in some areas, there may be more starter homes available, while in others, there may be more luxury homes available.
Here in Northern New Jersey, I analyzed market data across 14 towns comprising The Minken Housing Index. These towns reflect a cross-section of towns in Essex, Morris, and Union counties.
As shown in the chart below, the number of homes sold in 2022 compared to the prior year is down by double-digits for all towns in The Minken Housing Index. At the low end, Chatham Township is down 14.2% from 2021 levels. The biggest shortfall in inventory was in Chatham Borough which saw 107 homes sold in 2022, compared to 178 in 2021, a decrease of 39.9%. So what does this mean if you are shopping for a home in 2023?
If inventory levels remain low and buyer demand continues to be high in 2023, we will see home prices rise in 2023. If you had been hoping that home prices would be falling in 2023, this is not what I’m seeing. Most home sellers are not reducing the list price of their homes to reflect that home buyers are facing higher mortgage interest rates. It simply isn’t happening. The house that was purchased in 2022 will most likely have a higher price tag in 2023. Similarly, the home that is purchased in 2023, will tend to be higher in 2024. Home prices are trending upward. How high are home prices moving?
Home Prices Trending Upward as Inventory Remains Low
Below is a chart that shows the movement in home prices among the towns in The Minken Housing Index. For homes that traded in 2022, the average price of homes sold increased by double-digits in all but 3 of the 14 towns compared to the prior year. The town that experienced the highest average movement in sales price in 2022 compared to 2021 was Madison, New Jersey where homes traded an average 17.2% higher. Only one town saw virtually no change in average home prices – Chatham Borough. What is interesting to note is that Chatham Borough also saw the steepest decline in the total number of homes sold in 2022. What does this nuance in the market mean? When you are buying a home, the most relevant data is not only hyper-local, but it extends beyond that. It is granular. You may be asking what is “granular”?
Buying a Home? Get “Granular”!
While it is helpful to know how the market data is trending in a particular town, what is most meaningful when buying a home are the factors related to the house itself. You need to get “granular”.
It’s the composite of various factors that create a scenario for the house that has captured your interest. It’s about one house, and one house only. The house you want to buy. Imagine for a moment that you’re on one end of a rope, and the seller is on the other. Each side has their own goals and priorities regarding the real estate transaction. Essentially, you are both tugging on the rope and standing in-between you and the seller are a number of factors, such as price, closing date, appraisal, contingencies, etc. The key is to successfully navigate these factors so it becomes a win-win for both you and the seller.
When more than one buyer is interested in the same house, the seller may initiate a multiple bid offer process. The multiple bid offer process can be competitive and fast-paced, and it’s important for buyers to have their financing (either all cash or mortgage) in place and be prepared to act quickly.
How High is a Winning Offer?
One of the most frequently asked questions my buyers ask me is “how much do I need to offer to win the multiple bid?”
And since offers are typically not disclosed, buyers do not know what the other offers look like. This can make it difficult for buyers to know how much to offer and what terms to include in their offer. All it takes is for one buyer to “hit it out of the park” with an ambitious offer.
So how much are buyers bidding to win the house? To address this question, I’ve analyzed each of the homes that sold in 2022 to determine the highest offer in each town comprising The Minken Housing Index. The numbers in the chart represent the ratio of the sales price versus the list price (SP:LP). An offer at 100% simply means that the offer was equal to the list price. The sales prices noted in the chart, however, do not represent the most expensive homes that sold in 2022, but rather the homes with the largest sales price versus list price (SP:LP) ratio. Based on the results of The Minken Housing Index, the largest SP:LP ratio was 189%. This was for a home that sold in Montclair, New Jersey for $1,603,770. The lowest SP:LP ratio was in Mountainside, New Jersey at 114% and the sales price was $1,250,00. (To see what the average sales price was in each town, simply scroll up to Chart 2.)
Getting “Granular” this Home Buying Season
In 2023, you will want to get “granular” when making an offer on a home. Here are 5 key questions to ask yourself when getting “granular”:
1. How long have you been actively looking for a home? The longer you have been looking for a home, each house you look at can become more “meaningful” in your home search journey. For example. If you’ve been looking for your next home and it’s only been a few weeks, you probably will not have built up your motivation to essentially do whatever it takes to “win” the multiple offer process. The length of time you’ve been looking for a home tends to correlate with how motivated you are to craft a winning offer.
2. If you’ve been in the market for awhile, did you make any offers thus far? If yes, ask for feedback as to where your offer price ranked among the competing offers. You can also find out whether the winning offer was “all cash”. This will be helpful in evaluating the level of buyer competition in your desired neighborhood.
3. How much can you afford? If the home is listed for $800K and the most you can afford is $800K, then chances are that you are looking above your price range. It may be more reasonable to look at homes listed closer to $700K so that you have the flexibility to go above the list price if there are multiple offers. In other words, you will want to be the “big fish” in a “smaller pond”. So set yourself up to succeed from the outset. Be sure to reach out to your mortgage lender and get a current mortgage pre-approval if you are not paying all cash. Explore alternative financing arrangements with your mortgage lender to determine your purchasing power under different scenarios (e.g. 30-year fixed rate, adjustable rate mortgage, etc.)
4. How much is this house worth to you personally? This is a question that only you can answer. No algorithm will be able to compute how much the home means to you. There may be 1 or 2 things that you can identify as to why this home has a special significance to you. Overall, you simply want to tune into what is so special about this house that you want to make it your new home. It might be something as elusive as the house has great energy!
5. Am I getting most of what I’m looking for in this house? No doubt, you had a list (either written down or in your mind) of things that you were looking for in your new home when you first started your home search journey. Are you getting at least 80% of what you are looking for? There will be 10% that you cannot change, such as the location. And there will be another 10% that you can change, perhaps over time rather than when you first move in. For example, this might be the flexibility to add a 4th bedroom or convert a powder room to a full bath.
Creating a Winning Offer
How you answer these 5 questions will provide you with the granular insight that you need to craft the foundation of a strong offer. Putting your offer together so that it is a winning offer will require the expertise of your realtor. Similar to if you are baking a cake, you might have all the ingredients, but getting the cake to be a stand-out calls for the expertise of an experienced baker.
Helping my buyers find the right home within their budget is a fundamental aspect of what I do as an experienced real estate agent. I cultivate a personal and professional relationship with each of my clients and get to know in detail what matters most to them. Recognizing when a house seems to have been tailor-made for one of my clients comes naturally to me. I love what I do and put my whole heart into the home buying/selling process for my clients.
In a competitive market, it is understandable that buyers may feel anxious about missing out on their dream home. By getting “granular“, you can affirm a positive mindset and rest assured that if you miss out on a house, that an even better house is on its way. I recently worked with a couple for two years until their “perfect” home came onto the market. There were multiple offers, but they knew on a granular level, that this was indeed the right house for them. And yes, their offer was the winning offer!
The housing market is constantly changing and this is especially true in 2023. If you are house hunting, what matters is the house right in front of you. And what matters MOST is whether the house right in front of you, is the right one for you. This Spring is expected to be another competitive buyer season. Are you ready? Get granular!
Did you miss my previous article? Simply click on the hyperlink: The Winter “Window of Opportunity” for Home Buyers – Why Shopping for a Home this Holiday Season Can Deliver You Joy
Got questions? Reach out to me at 908-239-9261 or via email: [email protected]. I’ve got you covered from coast to coast, as needed, together with my CØMPASS colleagues in over 300 offices around the country. My mission is to help everyone find their place in the world.