May 2023 Central Virginia Housing Market Update
Hey Central Virginia! The Federal Reserve has recently predicted a recession by the end of 2023, and in this May 2023 Housing Market Update, we will breakdown how this forecast could potentially impact our local housing market. Stay tuned until the end, as I will provide three tips for both buyers and sellers on how to navigate this market.
Federal Reserve Insights:
The minutes from the Federal Reserve's Open Market Committee meeting in March shed some light on the potential economic effects of recent bank-sector developments, particularly Silicon Valley Bank. The staff's projection at the time suggested a mild recession starting later in the year, followed by a recovery over the subsequent two years. Let's explore how this projection might influence the housing market.
Foreclosures and Housing Market Impact:
Many people assume that a recession automatically leads to a surge in foreclosures. However, historical data shows that the Great Recession of 2008 was an exception rather than the norm. If we examine US foreclosure filings dating back to 2005, we can see that the current number of foreclosures is relatively low. Additionally, when considering US household equity, we find that 67.6% of Americans either own their homes outright or possess over 50% equity. These factors indicate that a significant wave of foreclosures is not necessarily imminent.
Home Price Trends:
Contrary to popular belief, a recession does not always result in declining home prices. Looking at the last six recessions, only two of them saw home price depreciation. The significant depreciation experienced in 2008, which was caused by the housing market crisis, was an outlier. In the 1991 recession, home prices only experienced a modest 1.9% depreciation. To understand this better, we can consider the supply and demand dynamics of the market. Currently, Central Virginia is in a seller's market, with a low market supply index (MSI) of 0.6. With such limited inventory, even if the market cools off slightly, it is unlikely to transition to a buyer's market anytime soon.
Real Estate Market Response During a Recession:
During the tail end of a recession, it is common for interest rates to decrease. However, we may not see immediate rate drops due to the Federal Reserve's efforts to control inflation. Once inflation is somewhat in check, it is expected that the Fed will follow historical patterns of lowering interest rates to stimulate the economy and lead us out of the recession. However, it is important to note that rates may not return to the ultra-low levels seen in the past.
Tips for Sellers:
Make Hay While The Sun Shines: Take advantage of the current seller's market and consider listing your property to potentially secure premium prices.
Premium Prices Still Go To Premium Products: In a competitive market, ensure that your property stands out by presenting it as a premium product with attractive features and upgrades.
Selling As-Is Is an Option: While preparing your property for sale is essential, it's also worth considering selling it as-is to save on renovation costs and attract buyers looking for potential value.
Tips for Buyers:
The Recession Isn't Here Yet: Keep in mind that the predicted recession has not yet arrived, so it's important not to make hasty decisions based solely on future uncertainties.
Interest Rates Aren't a Long-Term Problem: Although interest rates may not be as low as in previous years, they are likely to become more favorable as the economy stabilizes and the recession dissipates.
What's Your Time Horizon: Consider your long-term plans and investment goals when deciding whether to enter the market now or wait for more favorable conditions.
While the Federal Reserve's prediction of a recession by the end of 2023 may raise concerns, the Central Virginia housing market may not experience the same magnitude of challenges as seen during the Great Recession. With low foreclosure rates, limited price depreciation, and a strong seller's market, the current housing landscape suggests resilience. As a seller, seize the opportunity to capitalize on the market's strengths, and as a buyer, evaluate your long-term goals and make informed decisions. Remember, in real estate, knowledge and strategic planning are key to navigating uncertain times successfully.