Southwest Washington 2023 Recap: A Year Of Real Estate Freeze Ushers In A Hopeful Thaw
2023 was a challenging year for buyers and sellers in SW Washington and nationwide. This past year highlighted the intricate balance the housing market's overall health relies on, juggling factors such as mortgage rates, inventory levels, home prices, and overall demand. High mortgage rates took center stage in 2023, causing a ripple effect that sidelined potential buyers, restrained potential sellers, and left everyone frustrated. Yet, these mortgage rates were crucial in restoring market stability following the historic price inflation induced by the pandemic. Despite the short-term challenges in 2023, they have set the groundwork for a promising new year.
As we transition into 2024, there are indications of a thaw in the market, attributed to early signs of declining mortgage rates. Let's take a moment to look back on the real estate landscape in 2023 and explore how these dynamics will shape the upcoming year.
National Mortgage Rate Averages Constrain Buyers
The foundation for the market dynamics witnessed in 2023 was laid during 2020 and 2021. In response to the economic challenges posed by the pandemic, the Federal Reserve took emergency actions, driving mortgage rates to historic lows to sustain the industry.
By December 2020, Freddie Mac reported an average mortgage rate of 2.68% for a 30-year home loan, sparking a surge in demand that, in turn, propelled home prices to increase rapidly. As the pandemic neared its end, the Federal Reserve swiftly moved to curb inflation, causing the average 30-year rate to climb from 3.22% to a peak of 7.08% in 2022.
To bring mortgage rates back down, inventory needed to increase significantly to prevent another surge in demand that could propel prices upward. Thus began the waiting period of 2023. High mortgage rates hindered inventory growth, and the scarcity of inventory, in turn, maintained elevated rates. Mortgage rates hit a more than 20-year high in October 2023, hovering around 8% before falling below 7% in December.
Home Sales Decline As Rates Surge
In Southwest Washington, closed home sales hit a 10-year low in 2023, decreasing 28% from 2022 and 48.6% from 2021. In a sign of long-term market resiliency, however, home prices remained largely consistent with the year before, rising slightly from $577,591 in 2022 to $582,466 in 2023. The national market saw a similar story with a 2% increase in the median home sale price to $428,000.
These price increases are in response to demand and low inventory remaining in competition. When homes came on the market–particularly those at a relatively affordable price–they were snapped up quickly, and multiple offers/bidding wars were not uncommon.
Creative Solutions Embraced in 2022
Across the country, buyers began to look for alternative paths to homeownership. Nationally, demand for new home builds spiked as buyers opted for purchasing land and building their dream home rather than battling for it on the open market. Lenders offered attractive mortgage incentives like point buy-downs and refinancing options to smooth over the crunch of higher rates. Some buyers opted to establish themselves in more affordable locations, helping to spark growth in smaller communities. At the same time, other homeowners chose renovations and additions to their existing homes rather than repurchasing something new.
Promising Signs For The New Year
The topline prediction amongst most market analysts is that mortgage rates will decline this year. While there is a vast amount of variation in how much they will drop, we anticipate that for the next calendar year, we will see rates average around 6.5% for most buyers taking out 30-year fixed-rate mortgages.
This will have a two-fold effect: First, we will see increased demand nationwide as sidelined buyers rush to lock in lower rates. This influx in demand will create a particularly competitive Spring market where we may see some increases in average home prices and potential bidding wars on in-demand homes. Inventory will likely increase during this time as sellers who have put off a move due to high rates list their homes, but inventory will not likely increase enough to meet demand completely. We anticipate that 2024 will feature another Seller's market with increased sales due to more manageable interest rates. This year will be a key piece in the overall recovery from the pandemic. It may usher in a period characterized by less extreme imbalances and be a steady step toward a more moderate market.
Our Recommendations for Local Buyers & Sellers
Southwest Washington Buyers: Don’t wait for average mortgage rates to hit their anticipated year-low. Remember that all market factors play a balancing act with one another and where there are low interest rates, there will be high demand. Additionally, market predictions are simply predictions and real estate is a notoriously difficult industry to predict. Attempting to time the market is rarely a good idea. We recommend buyers enter the market when it is right for them rather than waiting for ideal conditions. Every home purchase is different, so if you’re considering entering the market this year, call us today. We would be happy to provide personalized recommendations on your real estate goals and further insight into what may be available at your price point and desired location.
Southwest Washington Sellers: Start the year with a complimentary home market analysis so that you have a complete understanding of the value of your home after all the market shifts of the past three years. From there, we can provide expert insight into your long and short-term goals for your home and your financial portfolio.
Whatever your real estate goals are in the coming year, we would be honored to be your guide. With over two decades of experience serving the Vancouver, Clark County, and Southwest Washington real estate markets, we have successfully guided clients to a successful home sale and/or purchase in almost every market condition imaginable. With SIX Best of Clark County awards and hundreds of five-star reviews, you can rest easy knowing your real estate journey is in the hands of an industry-leading team. Give us a call today!
Rowena Lusby
Team Owner & Managing Broker
Go With Ro | Windermere NW Living