By Mike Bodeen · 2 January 2023
Looking back one year, I should have taken Casey Stengel’s advice to “never make predictions, especially about the future.” My 2022 predictions had the caveat that mortgage rates would not exceed 4%. They hit near 7.5% stopping half the market. They have now dropped to 6.5%.
All in all however, my guesses were not too bad – some hits and some misses. Though I hit the target on price appreciation, I missed the boat on several matters. One was about the rental market which I thought would continue to have price increases – which it did – until August, and then prices began dropping. I felt prices were going to continue to rise, but at a lower rate than 2021. At the beginning of 2022, rents PSF stood at $1.35. Rents did continue to rise but peaked in August at $1.40 per square foot (PSF) but then they began dropping, and now stand at $1.31 PSF, per The Cromford Report.
I mentioned that price increases will start out high, continuing the 2021 market trend. I felt prices would continue to rise, but that the market’s unknown had to do with the iBuyers (OpenDoor, Offer Pad, etc). Well they turned out to be a casualty of the market drop rather than a leader.
I predicted the 2022 Phoenix Metro market would increase by 15%. As of 12/31, our annual price appreciation PSF was 16.1%. the annual median PSF was 14.5%. Don’t pop that champagne cork just yet. Very soon, all the price gains from the first half of 2022 we will have given back. Call it a wash.
In the early 1980’s when mortgage rates hit over 18%, the main driver was high inflation. In 2023, all eyes are on the Fed, and all their eyes are on – inflation. As mortgage rates go, so goes our market, but where will they settle?
Mortgage Rates? Though we could see rates drop below 5% for a short window, I think 5-6%% fixed rate mortgages will become the new normal, but it will take some time for that to sink into the American reality.
One of the ways we justified higher mortgage rates in the 80’s was that if we had a fixed rate mortgage, we were paying the loan off with “inflated dollars.” Since inflation had been so low over the past decade, we didn’t hear much comparison as such. They are again relative.
Inventory? I don’t see much higher inventory than where we’re at, in fact I wouldn’t be surprised to see it drop again later this year. This concerns me. In the last few days, Canada with a few exceptions, has stopped foreign buyers from buying their real estate, as foreign buyers were aiding their high appreciation. Question? In a world of great economic and social upheaval, where would/should people invest their monies. Any thinking person would have to say, American real estate.
Sales? Sales will start to increase as mortgage rates decline, or if rates stay the same for 4-5 months, as a pent-up demand will unleash buying. If that happens, all bets are off.
Appreciation? Yes.
-Mike Bodeen
Our 2023 Scripture Blessing for You and Yours:
The LORD bless you and keep you; the LORD make his face to shine upon you and be gracious to you; the LORD lift up his countenance upon you and give you peace. [Num 6:24-26 ESV]
Market data referenced in this article comes from The Cromford Report.