Housing Market Report: Our 2023 Recap and 2024 Forecast
Is now a good time to buy a home? Should you wait until next year? With rising interest rates and lingering financial impacts from the COVID-19 pandemic, answering these questions feels anything but simple. To help provide expert guidance on this complex topic, we invited Chris Kincaid, Senior Director of Sales here at Pahlisch Homes, to share his insights on where the housing market is today and where it might be going.
As a principal managing broker and market analyst with 35 years of experience in home building and real estate, Chris is a true thought leader in this space. In this blog post, he’ll look back and offer his 2023 housing market recap; then, he’ll peer into his crystal ball to provide a housing market forecast for 2024.
2023 Housing Market Recap
If I had to sum up this year’s housing market in one word, it would be unexpected. Back in the fall of 2022, the housing market seemed to be imploding. Mortgage rates had gone from less than three percent on a 30-year fixed in January — near an all-time low historically — to a whopping seven percent in September. This sent affordability crashing down, and homebuying confidence suffered. It caused a lot of homebuilders to take a step back, manage their inventory, and wonder what was going to happen next.
We expected there to still be a decent spring market in 2023 because even in the darkest of economic days, people tend to buy homes in the spring. But we weren’t expecting the market to take off the way it did. Although rates came down a bit in the first quarter, homeowners were still reluctant to give up the historically low rates on their current mortgages. This kept resale inventory low, but it also made new construction homes a great option for buyers ready to enter the market. Buyers also had the chance to breathe and make patient, educated decisions in ways they weren’t able to during the craze of the COVID housing market.
How COVID Shaped the 2023 Housing Market
The major market events that have defined the housing market in 2023 are all post-COVID reactions. When COVID forced our economy to shut down, the government had to flood it with money to stave off a depression — and it worked. But now we’re paying the price. Multiple factors have caused home prices to rise, and that, coupled with high interest rates, has corrected the market. And we’re going to be living that correction for several years.
Are We in a Buyer’s or Seller’s Market?
I explained earlier how higher mortgage rates have kept resale inventory low this year because homeowners don’t want to trade their low existing rates for something close to seven percent. But let’s dig into that a bit deeper.
Despite home affordability being the worst it’s been in decades, housing prices are still holding steady nationally. The primary reason for that is a continued lack of inventory. This narrative holds true in the three markets in which Pahlisch Homes operates: Central Oregon, Portland/Vancouver, and Southeast Washington. Each of these regional housing markets is running anywhere from two to three months of inventory. Months of inventory means how many homes are available with the current pace of sales if no other homes were to come on the market. Generally, anything above six months of inventory is a buyer’s market, and anything below four months is a seller’s market. Translation: we’re still in a seller’s market right now.
So then, when will it be a buyer’s market again? This is a question we hear a lot. If you’re “waiting for interest rates to come down,” you might want to rethink that strategy — mainly because everyone else is thinking that way, too. Let’s say interest rates come back down toward five percent at the end of 2024 or in the first half of 2025. Suddenly, everyone who was waiting on the sidelines to buy a home will come flooding back into the market, which will drive up demand and cause home prices to rise. Remember: this is a long-term investment. Instead of trying to time the market perfectly, focus on putting a financial plan together, figure out what monthly payment you’re comfortable with, and go from there.
How the 2023 Market Has Impacted New Home Construction
A record housing shortage in the U.S. has people saying, “We’re underbuilt. We need to build more homes. Especially affordable homes.” Unfortunately, when it comes to new home construction, there’s no magic switch we can flip to gear up and build new homes overnight. We would love to be able to deliver obtainable housing — there’s a massive demand for it — but bureaucratic challenges like urban growth boundaries, expensive building permits, and high costs for land make that a near impossibility.
That being said, there has been a mindset change here in Oregon, from the cities we work in all the way up to the governor’s office. Earlier this year, the governor set a housing production goal of 36,000 homes per year. A lot of that will come in the form of commercial development and multi-family housing, but we’re hoping some of this impacts single-family housing as well. But what’s on everyone’s radar is that the current pace of homebuilding is not enough, and it’s significantly delaying people’s entrance into homeownership.
How the 2023 Market Has Impacted Pahlisch Homes
Here at Pahlisch, we’ve faced our share of challenges in the current market. With our new homes and the unique value of our master-planned communities and luxury amenities, we’re looking forward to an exciting year. And yet, like all new home builders across the country, the amount of homes we sell per month is below the levels we saw in 2020 and 2021, which is to be expected when interest rates are so high.
As the year draws to a close, we’re steadily continuing to build homes, knowing things will be quiet during the holiday season. We’ll still sell a good number of homes — we have an exciting incentive program for buyers looking to save on purchasing a new home in some of our communities — but we’re really eyeing 2024. By February, the rain starts breaking a bit in Portland, the snow lets up in Bend, and people start emerging from the winter gloom to look for their next home. And we want to be ready for that shift.
2024 Housing Market Forecast
Right now, my theme for 2024 is “more of the same.” I know, not the most exciting prediction, but it’s what the numbers seem to be telling us. I don’t see anything on the horizon that will cause prices to skyrocket, and I don’t see anything that’ll cause the bottom to fall out of the market either. If I were a meteorologist, I’d say we’re in very tumultuous, stormy weather right now, making things hard to predict with a high degree of certainty. But my feeling is that the market is going to trade sideways for a while.
Potential Scenarios for 2024
The most likely scenario is that inventory stays really low because interest rates stay higher for longer than what was anticipated a year ago. Federal Reserve officials are still trying to tame inflation, and in recent meetings, the Fed has indicated they’ll likely keep interest rates over five percent through 2024. This means mortgage rates will remain high for a while.
Another possible scenario that no one likes to envision is the economy going into a recession in 2024. We haven’t had a meaningful recession in over a decade. If this scenario plays out, unemployment will go up, but the Fed will also bring rates down to stimulate the economy. Luckily, this scenario is looking less likely. In August, J.P. Morgan backed off their recession call and said their data showed a soft landing for the economy is possible.
Whichever scenario actually happens, Pahlisch plans to take a local approach when managing our business. Markets differ by region, so it’s hard to say exactly how a potential scenario will or won’t impact a specific city or market. When it comes to preparing for future housing market dynamics, the best course of action for anyone in the industry is to plan for multiple scenarios — good, bad, and in between. That’s the strategy we use here at Pahlisch Homes.
That wraps up our 2023 housing market recap and 2024 forecast. A huge thanks to Chris Kincaid for taking the time to share his wisdom and predictions with us. If you have any questions about the current market or what it might look like to buy a new home from Pahlisch, reach out to one of our New Home Specialists today. We’d love to talk with you about your options!