ICYMI: In an ongoing quest to fight inflation, the Federal Reserve recently raised its benchmark rate by 0.25 points to 4.75%-5%. So what does that mean for the housing market? The primary impact is reduced demand as buyers think twice about taking out long-term loans. Ironically, less demand could lead to lower home prices.
The Skimm explores this conundrum.
The housing market moves in a series of chain reactions. With inflation on the rise in 2022, the Fed began hiking interest rates. This cooled off many potential buyers, which in turn forced sellers to lower their asking prices, leading to a rare drop in median values and eventually a decline in inventory. Despite a brief holiday dip, interest rates remain at long-time highs, and the curve is bending upward.
Following a slow second half of 2022, buyer demand appears to be rebounding so far in 2023, with open houses, offers, overbidding, and absorption rates all on the rise. Median prices have yet to recover from recent declines, but those drops are based on numbers from the peak of a 10-year market cycle. And it’s only a matter of time before increased demand and a continued inventory shortage drive up prices again.
The proverbial pink elephant in the room is unpredictable interest rates, which have put a chill on the housing market. Spring is typically the most active period of the year for sales, so we should learn more in the next few months about where we’re headed.
January sales numbers are in, and it looked a lot like December – slow. But it’s typical for sales to cool off during the cold winter months. You can expect things to pick up in March, even with inventory and prices in a continued state of flux. Some things in the housing market never change!
Let’s take a look at how median sales prices for houses stacked up county-by-county from Napa to Monterey in Q4 2022. As you can see, costs get a bit more affordable the further you get from Silicon Valley and the Peninsula.
