Editor’s Note: Each Friday, WRAL TechWire takes a deep dive into the Triangle’s real estate markets. In recent weeks, we’ve covered how to win in the Triangle real estate market as a buyer and how sellers can prepare a home for sale in order to get top-dollar offers. Both of those articles may be of interest, given that multiple Triangle real estate agents told WRAL TechWire this week that the start of 2023 is set to be more challenging than the beginning of 2023.
RALEIGH – Navigating the Triangle real estate market will be tougher at the beginning of 2023 between the higher cost of homes and the higher costs of borrowing to buy a home compared to the beginning of 2022.
And the region’s real estate markets may be tough for both buyers and for sellers, multiple local real estate agents told WRAL TechWire in interviews this week.
That’s because of the rapid price appreciation that buyers, sellers, and observers experienced in 2021 and in the first half of 2022, said Tony Fink, a licensed real estate agent with Linda Craft Team REALTORS. But that’s not likely to continue in 2023, as mortgage interest rates have more than doubled than a year ago, according to the latest data from Freddie Mac, released on Thursday.
“Owners need to understand that prices rose noticeably in 2021 and 2022, driven in part by artificially low interest rates,” said Fink. “And rising incomes.”
Still, one trend – the Triangle continuing to be one of hottest in the country – may continue to persist, or even intensify, in 2023, said Fink.
That’s because fewer home sale transactions are expected. Owners who may otherwise choose to sell and buy a new house might instead decide to stay put amidst economic uncertainty and higher borrowing costs, Fink said.
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Triangle real estate market remains strong
Despite rising mortgage interest rates, Triangle real estate remains strong, said Fink.
“Unless we experience significant job loss or change in tax regulations impacting housing, home ownership and the overall health of the Triangle real estate market remains strong,” said Fink. “The Triangle housing market has returned to normalcy.”
Overall, across the United States, existing home sales are expected to decline in 2023 compared to 2022, at least according to the chief economist of the National Association of REALTORS, Lawrence Yun. He told NPR’s Marketplace that the latest estimate is about a 7% to 10% decline in overall annual sales in the United States.
Nationally, the number of pending home sales fell in November, the sixth consecutive month, according to the National Association of REALTORS.
“Pending home sales recorded the second-lowest monthly reading in 20 years as interest rates, which climbed at one of the fastest paces on record this year, drastically cut into the number of contract signings to buy a home,” said Yun in a statement this week. “Falling home sales and construction have hurt broader economic activity.”
And in the Triangle, that trend is occurring, as well, with lower pending home sales now. But, said Fink, even though about the same or fewer home transactions are expected in 2023, the inventory of available homes for sale is already showing signs of returning to more normal levels.
Meanwhile, home inventory, a separate metric, is now higher than it has been previously in 2022, said Courtney Brown, a licensed real estate agent with Relevate, formerly Hunter Rowe.
“While there is still low inventory, it s higher comparatively,” said Brown. “We anticipate that to continue as new construction picks up and people who need to sell continue to do so.”
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Still, buyers will face challenges
People move for a variety of reasons, and some sellers do need to sell, noted Brown. But some homeowners may elect to remain in their existing home rather than list their home and buy a new one, given the current economic climate.
Which could mean homes that might accommodate homebuyer’s preferences remain competitive, said Brown. Perhaps these homes would attract multiple buyers who would be looking for more space in order to work remotely from their home, or for potential buyers who are moving to the Triangle to accept new jobs in the region.
First time home buyers may face the most significant challenges entering 2023, said Fink. That’s largely due to the change in the cost of borrowing, while home prices remain higher than they were a year ago.
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At the beginning of 2022, for example, first time homebuyers might have qualified for a mortgage with an interest rate of 3%. After rising to more than 7% earlier this year, interest rates are now between 6.25% and 6.5%.
The data from Freddie Mac show that a year ago, the average mortgage rate for a 30-year fixed loan was 3.11%. As of Thursday, the average mortgage rate was 6.42%, up by 0.14% from the prior week.
A $450,000 mortgage at 3% would require a household income of about $78,000 to qualify to buy the home, said Fink, which is below the average household income in Wake County.
But at 6.5% that same mortgage now requires a household income of about $114,000. That’s 46% higher than a year ago.
And even for those who already own homes in the Triangle, it might be quite challenging to make a move, given that change in interest rates, as well, noted Fink. “Sticker shock,” said Fink, “is an impediment to making the move.”
Buyers may again face competition, too, added Fink, as there continues to be more demand for housing in the Triangle than supply, especially with in-migration to the region as people move to retire in the Triangle or move to accept new jobs.
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But sellers face challenges, too
Even if some homes attract multiple interested buyers, gone are the days that home owners could list their house for sale and receive multiple offers before anyone had even been inside of the home, said Fink.
Gone are the days of offers that include a non-refundable due diligence fee with five- or even six-figures, he added, noting this is not the norm and is “not likely to occur again with great frequency.”
Now, buyers are much more patient, said Fink. A recent Redfin report found that nationwide buyers are taking their time, and that means that those who are looking to sell are seeing their homes “linger” on the open market.
Brown put the state of the market in much the same way, noting that “buyers are pickier about what they want and are willing to wait for it.”
The result, said Brown, s that sellers are now facing negotiations with buyers who are more prepared than they were when mortgage interest rates were first rising.
“Sellers must be realistic when setting list price, realistic on time for sale,” said Fink. “And realistic on the likely prospects for negotiation with buyers through closing.”
Put another way: “Sellers need to sell; buyers don’t need to buy.”
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WRAL TechWire reporter Jason Parker, who is also a licensed North Carolina real estate agent, works with journalists from WRAL.com to track and present market data and report on how people are experiencing the region’s changing real estate markets. These special reports will use the category tag “Triangle Real Estate” or “Triangle Real Estate Market.