What Home Buyers Should Expect in the Spring of 2023

If it bleeds it leads, even if it's not accurate. Despite the constant caterwauling from the mass media about a housing crash, we are not seeing distress around the greater Atlanta market. That message however, is often taken at face value and some home buyers expect a bargain basement spring. Best advice as to what home buyers should expect in the spring of 2023...understand that it's not the spring of 2011.

Home buyers had a rough couple of years. While rates were certainly favorable, the lack of inventory resulted in a punishing home buying experience. FOMO, the "work from home" chatter and pandemic circus contributed to the beating; buying a home was not a pleasant experience. That's over; and while rates jumped, balance has returned as has the opportunity for home buyers to breathe a bit. The current market slightly favors sellers but it's nothing like it was. Some areas and homes will remain competitive but common sense should prevail. Preparation is the key to success.

Interest Rates Jump

When the Fed started raising rates to control rampant inflation, home buyers took a direct hit. Overnight and over the months, buyers fell out, unable to qualify as rates rose. As the chart below illustrates, interest rates spiked to the highest point in over a decade; the speed of the increase was dizzying. The second half of '22 saw remaining buyers with interest rate whiplash; activity slowed as the Fed intended. While rates are easing off the highs, the lows over 21-22 will not return. This altered the “housing food chain” and the reduced buyer demand is felt at most price points.

By the Numbers

Herky jerky and inconsistent, the number of homes sold since Jan '20 ran a trail like a bottle rocket with no stick. We see the winter slumps, the spring bumps and the downward slope starting mid '22. Listing inventory drops during the pandemic with the seasonal bump in '21. When '22 opens, inventory is at historic lows and the crazy period is on. Buyers fade late as sellers try to catch the last wave, and miss. But note, there is NO flood of inventory here or expected. This is a move to balance and in fact, inventory remains on the low side.

Move to Balance

Atlanta area home buyers need to be aware of months of inventory, this broadly indicates who the market favors. 0-3 months tends to favor sellers, 3-6 is balanced and over 6 favors buyers. Early 2020 was shaping up to be a typical cycle then covid tossed everything up in the air. The Fed correction is clear as we see the sharp move up that started in May '22. The winter '22 dip and we expect it back up as spring opens.

Days on Market

Greater Atlanta saw the same buyer hysteria the rest of the nation saw, but the area did not flash as a "zoom" town. As the spring '23 market opens, expect homes to be listed for 30-90 days before contract. Of course this will vary; multiple offers will be seen as will homes that sit with multiple price reductions. As contingencies come back, days under contract will lengthen back to pre-pandemic levels. It's also reasonable to expect more terminations as contingencies - especially due to low appraisals - become challenges. Note the list to sale price ratios, really never below the upper 90% range. This is overall, each area is different but it's unreasonable to expect to offer 75%-80% for the typical home and have it accepted. It's not 2011.

Prices Normalize

"Buyers Gone Wild" would be a good way to summarize the '21-early'22 time frame. Driven by any number of things, real and imagined, many home buyers overpaid, waived contingencies, bought homes they normally wouldn't have and acted with reckless abandon. Far too many used inexperienced agents that offered no guidance, some went unrepresented to be most appealing to listing agents (double commission). A recent poll of buyers over the last two years has a buyer remorse rate over 70%. Given the lack of discipline, it's only natural that prices settle off those unrealistic highs. Home prices are impacted by a myriad of things not real estate related; we expect prices to settle. Note however, there is NO CRASH on pricing, prices remain healthy and with continued limited inventory, there is no expectation of a price slump for spring '23.

Which Means Smart Buyers...

Work with experienced agents. Plainly stated, agents with less than three years of full time experience simply do not have the base of knowledge required. Buyer agents did little more than write contingency free offers as instructed. Buyer agents need to understand contracts, how to write effective stipulations, manage contingencies and PROTECT buyers.
Define success. Smart home buyers know what that looks like, where it is and what it costs.
Understand the market. Task the buyer agent to provide area overviews of data and trends. What are buyers paying, how are prices, what's wrong with the home? Have the agent complete an appraisal level analysis of any home considered for an offer. Buyers MUST ACT WITH CONFIDENCE, the agent's role is to provide that.

The Atlanta real estate market is not returning to 2011, there is no oversupply of homes. Prices will balance but the area did not artificially inflate; the fundamentals in this area are strong and will remain so. Buyers should define success, work with trusted lenders and vigorously qualify their buyer's agent. The time for hobby and hack agents is over.

Posted by Hank Miller on January 23rd, 2023