Have We Turned a Corner for 2024?

Have We Turned a Corner for 2024?

As we wind down a challenging year in real estate, we have an opportunity to reflect on the obstacles and difficulties the market presented to our clients and customers and begin to gain perspective on how 2024 might play out.

Declining Inventory and Rising Rates – A Tough Market for Buyers, and Sellers

It is no secret that those who have been trying to sell a home in 2023 experienced some conditions that seem to contradict each other resulting in a softening of the recent rise in home values. For one, a strong continued decline in the number of homes offered for sale in 2023 would suggest that buyers would once again be competing to secure a home and consequently drive prices higher. And indeed, this was true, but it was more limited than we’ve experienced in the past 3 years.

In 2023, there was an 18% decline in the number of homes listed in Tompkins County from 2022, and was the fourth straight year of declining inventory.

While it is also true that interest rates really began their climb in 2022, the impact was rather muted as cash continued to play a significant role in propelling sales and, therefore, market value. A cash buyer almost universally would beat out a financed buyer as there was less risk to the home seller, and often would be willing to pay more. But the era of “cash is king” that reigned for much of 2020 through 2022 seems to have weakened in 2023, giving financed buyers a bit more leverage, or at least greater ability to compete.

Home Values increased at a slightly softer rate.

However these buyers also had limitations on how much they could borrow as prices remained strong and lenders required appraisals to support the value being borrowed. As a result, sellers who had been seeing dollar signs the previous three years began experiencing the limits of price elasticity and seem to be becoming more accustomed to the idea that value growth is softening. 2023 marked the second year of softening increases in home prices with an increase of just below 7% in Tompkins County.

So, what does all of this mean for 2024? Overall, we’re optimistic.

Given the market fluctuations and competing forces on real estate values, it’s impossible to forecast with any certainty where we’ll end up in a year, but looking at the fundamentals of inventory, interest rates, and market economy, a picture seems to be emerging.

First, inventory remains at historic lows. The rapid development of market-rate rental housing in our area, including senior housing such as Library Place may begin to bring some local homes onto the market. Increased rental inventory coupled with growing regulations impacting short-term rental potential may also begin to encourage some local property investors to sell off part of their portfolios. However, neither of these scenarios is enough to offer any significant relief in available inventory. A sustained effort at the creation of new, owner-occupied for sale housing across a range of price points throughout the county is still a critical need to begin to balance the market and create opportunities for first-time and modest-income buyers.

Second, interest rate stabilization and potential further declines should begin to reset and establish a new reality facing both sellers and buyers. Rates have declined for 9 weeks in a row and locally 30 year fixed rates are again moving downward towards 6% from a high of over 8%. Interest rates are low by historical standards and at some point, both buyers and sellers may find that keeping their other life plans on hold while awaiting further declines may not be satisfying. Between the rapid growth in equity, sellers have accumulated in the past three years and the gradual decline in inflation and mortgage rates coupled with growing incomes for many buyers, their purchasing power should improve and help encourage those who have been sidelined to re-enter the market.

Look for our 2024 Market Report coming out later this month with data covering a wide range of property types, local school districts, and overall market performance from 2023. And be sure to reach out to your Warren Real Estate agent for more insights into the local market and experienced support in your home sale or purchase. In this challenging market, it pays to work with a licensed professional to help ensure that you have the information and resources you need to meet your goals.

Written by: Brent Katzmann, Warren Real Estate

(All data sourced from the Ithaca Board of REALTORSⓇ MLS based on results from 1/1 through 12/31 of each year reported. Data is believed to be accurate but not guaranteed.)