Its the beginning of the year, and nothing is more popular than predicting what comes next. Whether its fashion, home decor, paint colors, or real estate, we love thinking about whats to come.
Of course, predictions are only that: an educated guess at what is to come. No one could have predicted Covid, and few guessed at its ensuing impact on health and the economy, and similarly few predicted we would see the intense rate hikes that may only come once or twice in century.
So with an ever-changing, quick moving and unpredictable market, lets put a few predictions together for the Philadelphia real estate market, regardless...
Rates will continue to Rise.... Momentarily
The rate hikes aren't over yet. We know that. And since the Fed gives the market little time to catch up, we definitely will see more over the first quarter. That will impact the Spring market to some effect.
However, we expect those to rate hikes to be less intense going forward. Since that will allow some stability, we still expect the Spring market to be a seasonally more robust market, at least in the suburbs. Ongoing stability, regardless of interest rate, will allow the markets to adjust, bringing some prices back to normalcy and/or a more average inflation rate.
But later in the year, some are predicting a small recession. Middle to higher income buyers may see this as another time to take advantage of lowered rates, if that happens.
Inventory will stay Low
Inventory has gone from low to crazy low. Covid made selling difficult, but its lower interest rates mean that many people will skip the "move-up home" if they can. They'll keep their 2.5-3.5% rate on their current place and put their cash into renovations or additions instead of moving up. So movers will be more likely to move because they want to switch school districts, or because its impossible to add enough space, or because they actually have to move back across country or for a major life change (divorce or death). That means a lot of the "dream" suburban inventory will be even tighter, with more fixers leading. And new construction will be tight with lower new construction starts.
It Will Continue to be a Good time to Buy your Forever Home and First Home
So if inventory is tight, should I continue my search in 2022? If you are looking to move to a larger home for the sake of a larger home, the answer is a resounding maybe. Will it be your forever home? Are there unfixable issues in your current place? If so, then yes. Again, rates will go up, but so will home prices, on average, over the coming years. We aren't a resort town and we aren't a covid-era hot pick. Greater Philadelphia is an area of constant interest and need.
Moving from the city to your forever suburban home? Well, if the move is a definite must for you, then its better to do it sooner than later. It never easy, but the gap is currently widening between suburban prices and city values, so regardless of rate, it makes sense to move into a 2023 sale price as opposed to a 2025 sale price unless you have a definitive increase in salary upcoming.
Are you looking for your first home? Its not an easy time for first time buyers. They are facing high interest rates AND increased sales prices. But they are also facing high rental rates, a possible recession and a decrease in any investments they may have.
Not a great place to start. But, again, it may get worse or stay tight. Its all about the right property and buying smartly for first time buyers right now. It may be a longer, harder search, but buying your first or forever home right now will still be smarter financially than waiting 5 years, generally. Conversely, if you are a good saver and want to stay in the city for a long time, construction is ongoing for rental demand and may alleviate some of the pain in rental rates.
So best case scenario for a buyer in 2023? Buy at a lower price point in the Spring, then late 2023 or 2024 and refinance if a recession hits. Prices in our market will continue to go up at an average of 3% or more each year. Unless your income can claim the same, its better to buy now than in a year.
Best case scenario for a seller? Try the Spring market. If a recession hits later, it may drive up prices with lowered rates, but the normalcy and general sentiment will change. Spring is always a time of renewed interest and increased demand and a slowing, but ongoing, rate increase will spur some additional buyers into action.
Want to read more? This article from NYT has some very similar things to say, but with a national spread