A Crystal Ball in Hand: NV real estate market expected to level off
By Christina Fuoco-Karasinski
Speculation abounds about what the North Valley housing market will look like in 2023.
When it comes to North Phoenix, North Scottsdale, Cave Creek and Carefree, the real estate landscape is drastically different from what was experienced during the pandemic-fueled market when home prices skyrocketed, competition was fierce between buyers and demand was sparse.
“The housing market is finally starting to balance, which is a good thing for buyers and sellers alike,” says Trevor Halpern, chief executive officer of Halpern Residential at North&Co.
“I definitely don’t have a crystal ball, but I’ve followed market trends closely over the years and have a good idea of what people can expect this year.”
First, interest rates will continue to drop, creating more competition. At the end of 2022, the average 30-year fixed-rate mortgage was 6.31%. Because rates hit historic lows during the pandemic and subsequently shot up, buyers were hesitant to jump into the market at the end of last year.
“Here’s a mortgage rate reality check, though,” Halpern says. “In 1977, rates hovered around 16%. In 1985 they were about 12%, and in 2000 we saw mortgage rates of 8%. Realistically, today’s mortgage rates are much more reasonable than what we’ve seen in the past and they will continue to fall.”
In fact, the interest rate for a 30-year fixed-rate mortgage is expected to drop to 5.25% by the end of the year, according to a forecast by the financial services website Bankrate. That’s 1.49 percentage points lower than the current rate, and nearly two percentage points lower than 2022’s peak rate of 7.12%.
“As those rates drop, more buyers will enter the market, creating more competition and increasing housing prices, giving buyers less bargaining leverage than they have in today’s market,” Halpern says. “I also expect buyers to continue asking for concessions in the first quarter, until that competition heats up, at which point those will go away. Buyers are going to benefit greatly from a seller’s willingness to negotiate during the first part of this year.”
Next, sellers will start pricing according to the market as more inventory becomes available. Home price growth in North Valley has decreased significantly from double-digit rates in 2022. Data suggests that sellers are adjusting because of their awareness of the shifting real estate market and increased competition. In fact, 1 in 5 sellers have lowered their asking price, and sellers are more likely to finish major modifications before offering their homes.
“We typically see increased inventory on the market at the beginning of the year,” Halpern says. “In December 2021, there were almost 40% fewer houses advertised than in January 2022, and in 2023, we can expect similar trends.”
Investment properties are likely to be included in the new inventory as investors will start to re-enter the market once they see prices steadily appreciate. The best combinations for maximizing profit include growing rental demand and high rental prices, if investors can find appropriate financing options. When it comes to this arena in North Valley, though, it is a different story.
“Due to the abundance of short-term rental homes in North Phoenix, North Scottsdale, Carefree and Cave Creek, the Airbnb market in those areas will take some time to recover,” Halpern says.
Another trend the North Valley will experience is new multi-family rental construction. The supply chain issues of the past few years are expected to be resolved to stimulate more development in the region at a faster rate. Multi-family permits are rising, and the number of multi-family units beginning construction each month is steadily rising as well, reaching 8% higher than pre-pandemic levels in October 2019.
“One example is a New York-based company that’s investing about $250 million to build luxury rentals in the Valley,” Halpern says. “They plan to build 735 units near Taiwan Semiconductor Manufacturing Co.’s plant in North Phoenix.”
On the flipside, luxury housing will continue to be in demand, particularly those in affluent Phoenix suburbs. Resort-style residences perched above cliffs that offer panoramic views near upscale golf courses, boutiques, and popular tourist destinations should anticipate top dollar sales. This, as remote work continues to become the norm and snowbirds who regularly migrate to the area are staying longer.
“Something else I anticipate this year is the fall of iBuyers because the business model just doesn’t work,” Halpern says. “iBuyers have substantially reduced their purchases, and I think this will be a welcome change for client buyers as well. People are realizing that you need skilled representation in this market in order to get the best deal.”
On that note, Realtors will also be dropping off in droves. The country has more than 1.4 million licensed agents, and 800,000 of them did not sell a single home in 2022.
“Let that sink in for a minute,” Halpern says. “This is probably a direct consequence of the tumultuous housing market we experienced during the pandemic when the calls were rolling in and bidding wars were common. Last year shaped up to be a completely different landscape, and this year will be even tougher for agents to create success for themselves and their clients as the market balances.”
While 2022 may be remembered as a year of housing volatility, 2023 is more likely to be remembered as the year when the market finally returns to “normal.”
That normalcy should be a welcome feeling for consumers and agents alike as everyone has been through the wringer for the past few years when it comes to residential real estate. Although “normal” may be how it is described, Halpern cautions that “there is no such thing as a ‘normal’ real estate sale or purchase. They are all big deals to those involved, and they all have their pitfalls and major decision points. Just because the market may ‘normalize’ it doesn’t mean that consumers or agents should lower their guards.”
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