Real Estate Market Conditions
The Federal Reserve recently approved its tenth interest rate hike since March 2022. That action, compounded with a tumultuous banking environment including three midsize banks fails, has the Feds own economists warning of a mild recession.
That said, talk of a significant economic downturn is off the table for now. There’s a softening in price increases across the board, though housing costs and medical care have remained high. Supply chain issues seem to be worsening again as builders start more homes to keep up with demand. What’s fueling this demand? Payroll processing firm ADP reports that hiring by private sector companies increased by 296,000 jobs in April, far exceeding expectations.
The Gross Domestic Product (GDP), the total of all value added created in an economy, grew in the first quarter of 2023 at 1.1%. During the same period, personal consumption expenditures improved by 3.7% on an annual basis which means that consumers spent more on major discretionary items, such as motor vehicles, and everyday discretionary items like restaurants and shopping. Strong labor and housing markets are boosting an otherwise mediocre economy.
After cooling off in the latter half of 2022, the US housing market has remained strong by historical standards despite high interest rates and recession fears. Sales of new single-family homes jumped to a one year high in March to a seasonally adjusted annual rate of 683,000 units, the highest level since March 2022, and well above projections of 630,000 units. New home sales are counted at the execution of the sales contract and are considered a leading indicator of the housing market. Other lead indicators include a five-month high in building permits, and an uptick in builder sentiment.
Limited inventory continues to squeeze the housing market. Roughly 30% fewer new homes were listed this spring when compared to a few years ago. Likewise, the Alabama Association of Realtors reports that March listings declined for the fourth consecutive month entering the peak spring season. This shortage has led to the resurgence of bidding wars and homes selling for above the asking price and nearly half of homes on the market are selling within two weeks, according to Redfin. While the volume of sales has subsided since last spring, nationwide prices in March were 3% higher than last year.
A lot of factors are at play in today’s housing market. On the one hand, major life events, such as marriage, children, divorce, and death, prompt the need to move. On the other hand, ultra-low interest rates over the past few years are causing homeowners to stay put. The result? There are more buyers than sellers which means competition for new and existing homes remains fierce.