February 2023 Market Update
Hey Richmond, Virginia! There's been a lot of buzz lately about the possibility of a housing market crash. According to a recent survey, a staggering 67% of Americans believe that a crash is imminent in the next three years. But the real question is, will it happen this year? Today, we'll dive into the current market situation and explore whether these predictions hold any truth.
The Perception of an Imminent Crash: According to a graphic (Graphic 1), nearly seven out of ten Americans are concerned about an impending housing market crash. The fear and uncertainty surrounding this topic have sparked numerous discussions and speculations. However, let's delve into the actual facts of where we stand this year.
The Fluctuating Narrative: Last year, in June, there was a prevailing narrative that inventory levels would continue to rise, resulting in a shift in supply and demand dynamics (Graphic 2). However, contrary to expectations, this didn't materialize (Graphic 3). Even in Metro Richmond, December 22 marked the lowest number of new inventory listings in the past three years (Graphic 4).
Factors Influencing the Current Situation: Several factors contribute to the current state of the housing market:
a. Sellers Locked in Low Rates: With historically low mortgage rates, many homeowners have chosen to stay put and refinance their existing homes rather than sell. This has reduced the number of homes available for sale.
b. Limited Inventory for Sellers: Low inventory levels create a challenge for sellers who are reluctant to list their homes due to the limited options available for them to purchase their next property.
c. Strong Buyer Demand: Despite the challenges faced by sellers, buyer demand remains robust (Graphic 5). This is reflected in the showing time report, which indicates that the current demand is lower than December 2021 and December 2020 but still above the 10-year average.
Months Supply of Inventory: A key indicator of market health is the months supply of inventory (MSI). Notably, the MSI is dropping once again (Graphic 6). In January 2022, it stood at 0.8, suggesting a continued trend of limited supply relative to demand.
Will the Market Crash This Year? Given the current market dynamics, the question remains: Will we witness a housing market crash this year, or will we even see depreciation? It's important to note that the answer is not definitive.
Conclusion: While concerns about a housing market crash persist, the present situation offers a more complex narrative. Factors such as sellers locking in low rates, limited inventory for sellers, and strong buyer demand have contributed to the current market conditions. With the months supply of inventory dropping, the market continues to display signs of a seller's advantage. As we move forward, it's crucial to closely monitor the evolving market trends and understand that predictions about a crash are uncertain.