Demand is driving the market, more than interest rates.

March 8, 2023

If you are not putting your home up for sale because you think it’s not a good time to sell, according to the facts, you’re wrong.  Short term memory. There’s a tendency to compare conditions today based on recent events. I think some historical perspective is in order.  

The news:“Housing is in a recession”. But, compared to what? The lockdown of the past two  years drove 25% annual appreciation rates. Roughly a 50% increase over the past 2-years. That was not sustainable. It was an anomaly. The Federal Reserve, as I argued back in July 2021, had to exert monetary controls by raising rates to chill hyper-inflated home prices and inflation.

Higher interest rates, currently near 7%, have pushed more buyers to the sidelines. Inventory is increasing, but still well below the statistical benchmark of a balanced 6-month supply. Demand remains greater than supply. Too many buyers, chasing too few homes. It will continue to drive prices higher.  In February, the median sold price of existing single family homes rose 8.9%, year over year, to $490,000.

With history as our guide, pre-COVID 2018/2019, was our most recent balanced market. In February 2018, there were 2,714 existing single family homes for sale, a 5.3 month supply, and the median sold price rose 6.8% from the prior year.

One year ago, there were only 303 existing single family homes for sale, a 2-week supply.  Is it any wonder prices went up 25% last year?  Accordingly, although in February inventory increased to 1,209 homes for sale, coming off last year’s insanely low supply, that’s only a 2.9-month supply.  Still a housing shortage. A great time to sell your home.

Even with higher interest rates, prices will continue to go higher.  Interest rates don’t drive the market as much as supply and demand, and there are not enough sellers listing their homes to satiate buyer demand. Demand is driving the market higher.