Autumn Is Upon Us
What a difference a year can make. As we move into October and the final three months of 2022, it would have been difficult to predict how this year has progressed. Between an economic recession (admitted to or not by the federal government) a meteoric rise in mortgage interest rates and a major downturn in the stock market, the real estate economy is doing its best to move forward.
This month I will identify six key differences in the 2022 real estate market compared to the same period in 2021. At times I will be writing about the overall market and other times, I will highlight one of the four sub-segments of our market – Existing Homes, Existing Condo/Townhomes, New Homes and New Condo/Townhomes.
#1 Mortgage Interest Rates And The Effect Of Cash Sales
I will start with the fast rise of mortgage interest rates. A quick look at cash sale transactions for the first 8 months of 2022 compared to the same period in 2021 tells the tale. As mortgage rates climbed each month, this resulted in some homebuyers avoiding the high rates by paying cash instead. Cash sales in August alone were 4% higher than August of 2021. (September data will follow by mid October)
#2 For Sale Inventory
Looking at the number of homes for sale, 2022 is turning out to be a good year. After sinking to a new record low count of homes on the market at 1,630 in March, the listings rebounded and have continued to rise throughout the year. Overall home inventory is up over 24% from last year rising to levels we haven’t seen since August of 2020. The additional homes for sale have been welcomed by eager homebuyers still out searching.
The category leader of higher listing counts is brand-new single-family homes. Builders seeing a lot of activity in 2020 and 2021 worked hard to open new developments and add homes to the market. With over 1,000 new homes to choose from, that represents a 42% increase over last year. Because of the higher price point of new homes, the fast rise of mortgage rates is slowing sales in this category and many builders are reacting with buyer and REALTOR® incentives to spur sales with the slowest time of year approaching. The only category where listing counts are not above last year is the existing condo/townhomes. This segment of our market is also the most popular with virtually any newly listed existing condo/townhome being snapped up within a day in most cases.
#3 Pending Sales Activity
As For Sale inventory rises, the number of homes in sale pending status have taken the opposite path this year. The spring market experienced a familiar buildup of homes under contract in the first five months of the year, however without the ferocity of 2020 and 2021. With fewer homes in the closing pipeline, many mortgage companies and escrow companies are also processing and closing sales in less time than last year. The number of homes in pending status are down overall by 34% from a year ago and closed sales are behind by 5%.
#4 Home Prices
You can’t talk about the list price of homes for sale without referencing closed sale prices. On average, the overall asking price of a home for sale in 2022 has been around 17% higher than 2021. While that percentage seems high, the median sale price right now is up by just under 5% from last year. This indicates that home values are leveling off, but not falling.
The sale price by category tells a better story. Existing home sale prices are only up by 3 1/2% from last year even with the asking price over 34% higher. The median sale price of a new home this year is up by 18% and asking prices of the same homes are also up over 13%. This is a classic example of home sellers not quite willing to accept that prices have stopped rising by double digits. New condo/townhomes are sitting at exactly the same asking price as of September 2022 vs September of 2021.
#5 The Pace Of The Market
Currently, we have a 2 ½ month’s supply of homes to sell. In today’s market, anything less than 3 months is considered a Seller’s Market. When the number is between 3 and 5 months, it is a Balanced Market, giving equal favor to buyers and sellers. Anything above 5 months of inventory becomes a Buyer’s Market.
When you break down the Months of Inventory by existing and new construction homes and you see two totally different types of market. Existing homes are solidly in a Seller’s Market state with between 1 and 2 ½ Months of Inventory while new construction is deep into a Buyer’s Market with upwards of 8 to 13 Months of Inventory.
#6 Closed Sale Units
The last area to talk about is the number of homes sold year to date. In recent years, the Central Iowa market saw closed sales climb as mortgage interest rates fell to what felt like weekly historic lows. 2020 and 2021 were exceptional years for real estate sales with 2020 closing 16,000 sales and 2021 ending the year at 17,000. The pace for 2021 shows the Central Iowa market acting more like 2020 with a projected target of 16,000 closed sales by year end.
In closing, one thing is for certain. The real estate industry has been strong through the Covid years. I’m not saying it was easy for buyers or sellers. Frantic would be a better word. The desire to own a home continues to be strong, even with higher mortgage rates. Over the years, owning real estate has proven to be a safe long-term investment. People will continue to buy and sell homes in any kind of market and there are opportunities at every turn.
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~Les Sulgrove, Vice President
VIA Group REALTORS
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