How would you describe the housing market right now? is it up? even? Below? crashed? Each option is partly right and partly wrong. That’s because these days, there is almost no way to describe the housing situation in the United States on a national scale. To understand what’s happening and make sound investment decisions in 2023, you need to pay attention to regional trends and individual market metrics.
To shed some light on the differences in market behavior, I tracked down 295 of the nation’s largest housing markets and jotted down the most interesting trends and findings from my research.
Selling price
Of the 295 markets studied, 200 were up or flat year-over-year. This is true, even though housing prices are about 3% lower nationally. Meaning although nearly two-thirds of the markets are still up year-to-date, the depth of the decline and the size of the markets seeing negative price growth are pulling down the national average.
For the most part, the pandemic-era craziness is over, but there are actually still 37 markets with double-digit growth. Macon, Georgia is up 28%, with several other red-hot markets coming up in the Midwest. Springfield, Ohio; Saginaw, Michigan; And some places in Wisconsin still have increases of over 20%.
Of course, there are also markets that are seeing major declines. Austin leads the way with -14% growth, followed by Sacramento and Boise with -12% growth, and other major markets like Seattle, Phoenix, Los Angeles and Denver are seeing some of the worst improvements.
What struck me when looking at the selling prices was how pronounced the regional differences were. For the most part, western states are seeing major declines, while markets in the Midwest and Northeast are doing well. The south is still mostly growing, but there are also some markets in decline. To help visualize some of these regional differences, I selected (somewhat at random) markets from each region.
As you can clearly see, Boise has seen a huge drop but is starting to level off. Madison and Orlando are relatively flat, and Rochester is still on an uptrend (even though it looks like it’s down for a few months due to the weather, it’s up year-over-year).
inventory
The prevailing logic over the past year has been that with higher interest rates there was bound to be a substantial increase in inventory, and in some ways, this is true. Stocks were up year-over-year in 183 of the 295 markets studied. Some markets have actually skyrocketed, including markets such as The Villages, Florida; Austin, Texas; and Spokane, Washington, are all seeing inventory more than double.
This appears to be a worrying statistic as rising inventory may precede a sharp drop in prices, but year-over-year data can mislead us. Inventory was extremely low during the pandemic, so I looked at current inventory and compared it to similar months in 2019. I found that inventory in only 20 markets exceeded pre-pandemic levels. That’s too little! Even with high interest rates, there are only a few markets across the country where inventory levels have fully recovered.
Even more remarkable to me is how little inventory remains in other markets. For example, in Muncie, Indiana, inventory is only 21% compared to 2019. That means there is now just one out of every five homes for sale in 2019. When you look regionally, the low inventory levels are primarily concentrated in New England. Massachusetts, New Hampshire, Vermont and Connecticut all have several markets with very low inventory.
Even in Boise, which has seen huge improvements, inventory this winter has fallen in line with seasonal patterns and is not spiraling out of control.
new lists
One of the main reasons inventory remains so low is the lack of new listings. Only 16 of the 295 markets saw an increase in the number of new listings in the past year. It’s as close to a national trend as it gets in the housing market right now. Unsurprisingly, those 16 markets are primarily concentrated in Florida and Texas.
Sellers are revolting in some markets. Burlington, Vermont has seen a 68% drop in new listings this year, as has Truckee, California. The other areas with ultra-low new listings are in New England. It makes sense – a drop in new listings and low inventory go hand in hand.
If you’re wondering why the housing market isn’t collapsing nationally, this is one of the main reasons. There is little to buy, which is offsetting the fall in demand that comes with rising interest rates.
day on the market
Days on Market (DOM) is an excellent indicator as it helps us to understand the balance of supply and demand in the market. In markets where there is excess supply, the DOM goes up. In markets where there is high demand, the DOM goes down. Balanced markets stay flat.
What we’re seeing right now is that DOM is growing in 246 markets. Although inventory remains low – properties have been on the market for a long time in most parts of the country. But how long it will take varies dramatically.
In Boise, average days on market have increased from 13 a year ago to 88 today. That’s an increase of almost 600%! No wonder prices are dropping in Boise. The chart above does a great job of showing what’s happening right now. Fast-growing markets like Boise and Orlando are making a comeback. Meanwhile, more “boring” markets like Rochester and Madison are almost completely stagnant, as they have been for years. This is generally true for many major metros in the Midwest and Northeast.
sales-to-inventory ratio
The last metric I looked at is the sales-to-list ratio, which measures on average how much below or above the asking price properties are selling for. Despite the drop in demand, there are still 49 markets in the US where average sales are above inventory. Of all markets, Rochester, New York, leads the way with the average home selling at nearly 107% of list price. Madison is also above 100%, which is no shock given the dynamics of supply and demand.
However, buyers in other 246 markets are getting a discount on the sale price. I’ve been talking about the concept of “deep buying” (buying below the ask price) for several months now, and it seems that in 84% of markets, this is happening. In Key West, Florida, buyers are buying at 95% of list price, in Austin at 96%, and in New Orleans, it’s at nearly 97%.
To me, this is a perfect example of why understanding local market dynamics is so important. If you see that inventory is rising and you’re in a buyer’s market, you can make an offer lower than the asking price – and as the data shows, you’ll probably get it! However, if you’re in a strong seller’s market, you may still have to write a competitive offer and won’t have the luxury of being as patient as you’d like.
conclusion
Hopefully, this analysis has shown you that attempting to describe the “housing market” just isn’t possible. Each sector and each individual market is behaving differently. The markets are still vulnerable to the pandemic with massive growth and low inventory. And there are markets where huge improvements are being seen.
How you invest in 2023 should largely depend on your local market dynamics. Some markets will support flipping now, while others are better for rentals, and some probably shouldn’t be touched at all. As an investor, I encourage you to stay on top of the metrics I mentioned in the above post and use them to help you make investment decisions.
What are you seeing in your local market, and how are you adjusting your investment strategy accordingly? Let me know in the comments below!
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Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
