Decoding the Resilience of the Housing Market in 2023

Plus Insights for 2024

Let's dive right into a topic that's been on everyone's minds: the surprisingly resilient housing market in 2023 and what to expect as we move into 2024.

Understanding the Housing Market Dynamics

With skyrocketing property prices, historically high mortgage rates, and economic uncertainties lurking, many anticipated a housing market correction in 2023. But here's the twist – it didn't happen. In fact, property prices have not only remained steady but have even shown signs of increasing.

So, how is this possible? Let's break it down.

The Economics of Supply and Demand

In the world of real estate, as in any market economy, prices are influenced by the age-old dance of supply and demand. Supply represents the available homes on the market, while demand includes both investors and eager homebuyers. The point where these two forces intersect is known as equilibrium, a sweet spot where price and quantity find harmony.

For instance, back in July 2022, our Las Vegas housing market equilibrium saw 527,000 houses sold at an average price of $415,000. This was the market's sweet spot at that time. However, the curves of supply and demand are far from static; they shift and sway with changing conditions.

Where We Stand Today

Fast forward to today, and we see significant changes in both supply and demand. In response to rising inflation, the Federal Reserve hiked interest rates, causing mortgage rates to follow suit. This, as expected, led to a dip in demand.

As the basic economics principle dictates, when prices rise, demand falls. A glance at the Mortgage Bankers Association's Purchase Index reveals a substantial drop in demand for purchase mortgages. This was an anticipated outcome of surging interest rates and explains why many predicted a decline in home prices for 2023.

However, this prediction hinges on the assumption of constant supply (or inventory, in real estate terms). But that's not what unfolded. Instead, inventory decreased from 2022 levels, largely due to the lock-in effect.

In July 2022, the United States had around 1.24 million homes in inventory. Fast forward to July 2023, and we're looking at approximately 980,000. When supply and demand drop proportionally, prices remain relatively stable, while sales volume decreases. In the summer of 2023, home prices have remained flat year-over-year, with a 15% drop in sales volume.

What Lies Ahead in 2024?

Now, the million-dollar question: What will impact supply and demand in 2024? My current outlook suggests that supply won't budge much. The lock-in effect is real, foreclosures remain below historical averages, and new construction, while solid, won't substantially affect inventory anytime soon.

Demand, on the other hand, is more uncertain. If interest rates remain where they are or increase further, demand could deteriorate. A significant labor market disruption and rising unemployment could also contribute to lower demand, potentially causing prices to dip slightly.

Alternatively, if mortgage rates drop and the economic landscape brightens, demand may surge in 2024, likely pushing prices upward.

Final Thoughts and Your Input

As we gaze into the crystal ball of real estate, the future is foggy, to say the least. Normally, I make predictions at the beginning of October, but this year, I'll be giving myself a few extra months. Predicting in this climate is no easy task. I'll be closely monitoring inflation, labor market data, and Fed policy changes in the coming months.

Now, I want to hear from you! What do you think will drive supply and demand in 2024? Share your thoughts. Thank you for being part of our Las Vegas real estate community, and stay tuned for more insights and updates right here.