Preparing You For the Coachella Valley Real Estate Market Ahead
Over the past 2 years, the real estate market has been routinely positioned as “unprecedented” – and for good reason. Stoked by low interest rates and a shift in remote work and other pandemic-era trends that created stronger demand for suburban communities, shrinking levels of inventory were being frenetically snapped up by home buyers and investors at never-before-seen rates. This activity pushed up prices and created extreme conditions across the country. Starting in the spring of this year, rising interest rates cooled the economy and the housing market, slowing sales activity. The overall direction and velocity of the market is now on this new path, creating some uncertainty for both buyers and sellers.
Heading into the 2022-23 peak desert sales season, we are faced with another set of unprecedented conditions. To help prime you for the market ahead, we put together an examination of desert real estate market stats from 2017-2022 to identify what’s happening and where things could be headed next.
Early on, many in the industry were comparing the fall 2022 real estate market to the same period of 2019 because it was the last “normal” market. However, after looking at the numbers and patterns, there are some major differences between now and then. The days on market (sale pace), median active price, and median sold price all indicate a much slower market in 2022 than in 2019. Even pushing out the scope of our comparison to 2017, we see that inventory is going on a steady, measured descent in overall direction 5 years and 4 years ago, respectively, with healthy seasonal cycles of activity and obvious shapes to the market’s path. This general trend line is common until we get into the spring 2020 market when things really take off, causing severe market conditions. In contrast, the 2022 trend line shows a different direction, with inventory up, activity down, and a flatter pace of homes hitting the market.
So, what does this mean? We are in uncharted territory for the third straight year. There are many factors, including higher interest rates stifling demand, an uncertain economic picture, and an overall malaise over the market. As a result, inventory is rising, prices are on stable footing, but there are some potential cracks showing as activity continues to stay low.
Prices Are Stable – For Now
Climbing inventory should have an impact on home prices, but so far there hasn’t been a discernible change in price direction. The rate of price growth has been slowing over the last couple months and returning to traditional levels. However, we are still seeing very healthy prices due to inventory sitting below our average historic levels.
Also factored into this equation is a slowing rate of inventory. Homes aren’t being listed as frequently as in past years. For example, there were 777 new listings in November 2022 vs. 1445 five years ago, 1454 four years ago, 1285 three years ago, 1000 two years ago, and 934 last year. Those figures really demonstrate the decelerating rate of new inventory, with a 46% decline in new homes this year compared to 2017. The key question here is how long will this continue, and what will its impact be on the market?
Understanding why inventory is rising, which is due to slowing demand, makes it easier to see how price growth is heading toward a plateau or even slight regression in the coming months. Looking at this in greater context is equally as important. The average sale price is up by almost 84% compared to 2017, nearly 23% compared to 2020, and 8.25% over last year. Homes are still selling for historic highs, which is also feeding the slowdown in activity. We could see a more sustained price correction in the coming months as sellers drop prices if inventory continues to stay on the market longer.
This should be good news to both buyers and sellers as it will create opportunities for all parties looking to make their move. Anyone who is going to be listing a property for sale needs to be realistic with the state of the market. Working with a local real estate expert will help you determine the best pricing and marketing strategies for your home.
The Impact of Rising Interest Rates on Demand
In addition to rising inventory and slowing listing rates, there is less activity in the market. A big factor is the impact rising interest rates have on prospective buyers. Historically low interest rates were a key part of stoking the recent housing market run. With rates now nearly triple what they were two years ago, there’s a segment of buyers who are waiting to act.
Although higher interest rates don’t impact the desert market as much as a traditional, non-resort market, they are still eating into a portion of the buyer pool. Those who will need to finance their home purchase either can’t afford the payment at almost 7% or simply refuse to budge until rates go down. Hopefully there will be some relief if the rate of inflation is finally cooling (as indicated with the Fed’s most recent report), but it won’t be overnight and additional rate increases have already been teased.
Buyers in this situation should consider exploring a loan buydown option. This tactic allows loan basis points to be bought out for the first part of the loan agreement, which lowers the monthly payment and buys some time until rates can come down. Speak with your real estate professional or loan officer for full details and to get advice for your specific situation.
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