How Was The Housing Market in 2022?

A Look At The Housing Market in 2022

Over the past three years, the real estate market has seen unprecedented milestones. From record-high sale prices to record-low inventory, the market has shown us that just when we think we know what will happen it will show us something different.

Birmingham Housing Market In 2022

 

Who would have thought that we would see 20+ offers on a property and the final sale price be 30, 40, or $50,000 higher than the list price? In some areas of the country, sales prices have been even higher.

In 2022 we saw this raging market hit a large bump in the road. The interest rate hike in the first half of the year significantly throttled sales in most markets.

The higher rates resulted in larger mortgage payments which took many buyers out of the market. Whenever this happens the supply and demand formula is affected.

The dynamics of supply and demand dictate that as demand decreases (because buyers are leaving the market due to higher mortgage payments) prices will drop. It’s important for sellers to recognize this or the home they are selling may be overpriced and it will take longer to sell.

The second half of 2022 saw sellers, and those helping them, trying to adjust to the new norm that we haven’t seen since before the pandemic of 2020. For those that were able to recognize the market shift nothing changed, however, for others who refused to see what was happening, it may have taken longer to sell due to overpricing.

Today I’m going to share with you some visuals of key metrics that occurred in 2022 and we’ll look at how they compared to prior years.

Sales Volume

It’s easy to look at some stats and infer from those select ones you study that the market is performing a certain way. For example, if you only look at average or median sold prices you might say the market is still hot because those numbers are still increasing, however, the market is more than just about one stat because you have to look at a collection of numbers to get a more accurate picture of what is happening.

Sale volume reflects the number of homes sold during a certain time period. The graph below reflects the sales volume for 2019 through 2022.

Birmingham sales volume 2022

I went back to 2019 because I consider this to be the last normal year we’ve had. In 2020 we saw a 7% increase in volume over 2019 while in 2021 we had an increase of 16% over 2019 and in 2022 we were around 3% less, which is not much at all.

While the volume in 2022 was lower than the two prior years it is about where it should be when compared to 2019. With interest rates expected to hover in the 6-7% range throughout 2023, we probably will not see a significant increase in volume like we did in 2020 and 2021.

Active Listings

For January 2023 we are seeing the number of active listings starting to increase. We have seen steady decreases over the past 3 years from 2020 to 2022 where the number of active listings declined by almost 45%, however, for 2023 that number started to climb.

Birmingham Active listings 2022
The number of listings on January 1 increased by 25% from 2022 to 2023. This is lower than the “normal” number of 2020 before the pandemic struck and it is still below average.

While it is possible that these listings could be a reflection of more sellers listing their homes for sale it is more likely a result of the slower market brought on by higher interest rates.

With increasing inventories, it is important for sellers to listen to the market when pricing their homes for sale. While this is not a total buyer’s market it is moving in that direction and with fewer buyers around those that have been left are not paying over the list price as much as they were in 2020 and 2021.

Sales Volume in December

Did you have a little more time this past December to do some shopping and attend Christmas parties? I’ll be the first to admit I did because I did not have as many appraisal orders as in past years.

Sales volume for single-family home sales in December of 2022 was down approximately 40% from the high in 2020 and 2021. The volume reminds me of what we saw in 2007-2008 during the recession.

Birmingham December Home Sales
This reduced sales volume may be a reflection of the higher interest rate but we’ll be better able to see what is ahead of us as we go into the Spring of 2023.

Average and Median Prices

As I stated previously, both average and median prices are increasing but that is no surprise. We still have an undersupply of homes relative to the demand so prices are increasing.

Birmingham Avg vs Med Price 2022
Increasing prices will need to be tempered with the increasing inventory to fine-tune list prices going into 2023. Buyers are in tune with what is happening and will demand homes be priced to the market rather than the pie-in-the-sky aspirational prices we’ve had for the past 2 years.

Sale Price to List Price Ratio

The stats for this metric includes all markets within the Birmingham metro area, including Jefferson and Shelby counties. When you include all of the MLS market areas it tends to wash out some of the crazy numbers we were seeing in the more popular locations.

Birmingham Sale Price to List Price Ratio 2022
Even when looking at all areas we still saw year-over-year increases from 2020 through 2022. I believe that this trend may continue in 2023 due to the lower inventory, however, I don’t think we’ll see the extreme numbers that some of the higher-demand areas experienced.

Average Days on Market

The average days on market seem to be tracking directly with the number of active listings because as listings dropped from 2020 to 2022 so did days on market.

Birmingham Days on Market 2022

This makes sense because as inventory levels declined the existing homes for sale were gobbled up by the increased demand and the time a listing took to sell steadily declined. If the inventory for January of 2023 is any indication of what lies ahead the days on market stat will most likely increase as well.

Interest Rates

FreddieMac reported on January 5, 2023, that mortgage application activity had sunk to its lowest level in the past 25 years. This is most likely tied to the higher interest rates.

Mortgage Rates 1 yrMortgage Rates 3 yr

What happens in 2023 will depend entirely on what happens with interest rates. A decline in rates will definitely help buyers re-enter the market and it will also have a positive effect on refinance activity if they get low enough for those that have purchased a home over the past year to refinance at a lower rate.

Conclusion

The graphs I’ve included tell a pretty accurate story of what we’ve seen over the past 3-4 years. They also give us a good indication of what to expect in 2023. If you have any questions about the local real estate market or need an appraisal don’t hesitate to give me a no-obligation call and as always, thanks for reading.

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Comments

  1. Happy New Year! Nice job with your visuals and analysis! Here, our sale volume declined in November but was either up a little or flat in December which surprised me. It will be interesting to see what happens with mortgage rates in 2023.

    • Thanks for sharing about your area, Shannon. I think the market in 2023 will hinge on what happens with interest rates so I hope that they will not go any higher and hopefully they will decrease.

  2. Thanks Tom. Love seeing the visuals to understand your market. I think it’s smart to consider a pre-pandemic normal too. Kudos.

    • Thanks, Ryan. Yeah, I think it’s important to consider what a “normal” market looks like considering the hyped-up market we’ve gotten used to over the past two years. By the way, you did a great job on the Mckissock presentation today. Wishing you the best in 2023.

  3. Nice summary Tom. Near me most markets peaked in late spring and have declined since. Volume is down about 40% too.

    Good luck this year

    • Thanks, Joe! Our sales volume declined in December more than expected. I think the interest rates had a lot to do with it. Hopefully, they will settle down and allow more buyers to enter the market. Wishing you the best in 2023!

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