Cliff and I are off to Egypt this week, so today's blog is my last of 2022. (Time to float on the Nile.) In light of my impending date with the sphinx, what better way to end the year than by looking back at 2022; a year that started out hot and heavy and ended decidedly cooler. (Grab a cozy blanket and some warm cocoa.)
Given that most people prefer NOT to move during the holidays, the market is seasonally quiet; however, what's less typical is that we expect to see this slowing trend continue well into 2023. In fact, the ballast may not return to the marketplace until 2024, according to many industry experts.
Why? (I'm glad you asked.)
With 88.2% of California homeowners locked into rates below 5% (and the majority of those are under 3.5%), there's very little incentive to place your house on the market, only to replace it with another home that cost significantly more to carry. As a result, homeowners have opted to stay put.
Consequently, the housing supply has dropped nearly 20% in the fourth quarter alone and is expected to remain anemic throughout 2023. That being said, there's still good news for Sellers. As a result of decreased inventory, housing prices haven't fallen off a cliff and that's the silver lining (Nobody's giving away their homes or going into foreclosure as was prevalent in 2008 - 2010.) although housing values are now back at pre-pandemic rates.
On the flip side, BECAUSE the market has softened considerably, there are good possibilities here for Buyers willing to take advantage of these rare opportunities. With more positive outlooks projected, and with the Feds signaling that they may finally take their foot off the gas, there ARE going to be small pockets where the interest rates correct in your favor. Your job is to be ready when opportunity knocks. (Carpe diem.)
In the meantime, let's look at the numbers . . .
In 2021, the MLS (Multiple Listing Service) recorded 148 sales in Piedmont at an average sales price of $3,126,188, or approximately $918 per square foot (psf). All but two of those 148 sales came in at, or above their list price - often significantly more.
So where does 2022 stand?
As of December 9, 2022, 114 Piedmont homes transferred ownership with an average selling price of $3,182, 996 or approximately $932 psf. However, it is important to note that when we break out the last three months of the calendar year (September - December), the average selling price dropped to approximately $2,875,000 with the average psf at $877.84, and days on market rose to 12. (Still incredibly favorable by most people's standards.)
But there's a footnote: for the first time in years, the fall market of 2022 experienced "price reductions," "price enhancements," "price improvements," and "price corrections" (across ALL segments of the marketplace) while multiple offers, along with 'the gift," all but disappeared.
No matter, softening values didn't seem to dissuade hopeful Sellers who stubbornly clung to last March/April's values when the average Piedmont sale had quickly climbed to $3,619,278; an all-time high.
For those Sellers who struggled, the lack of an "acceptable offer" often had more to do with a market disconnect than with disappointing responses as the market remained relatively healthy, in spite of soaring interest rates. In other words, if the house was "priced to sell," it sold. If it was priced incorrectly (too high), the property chased the market down, moved to the rental market, or withdrew from the marketplace entirely.
While there's no denying that MANY anxious Buyers pulled back as interest rates jumped, it's also true that it was easier to afford a $3.2 million house at 3% than a $2.8 million house at 7+%, thus the correction. Moreover, fewer Buyers meant that Sellers could no longer expect competitive bidding wars come the offer date.
"You mean to say that my house is now worth $500,000 less?" was a refrain Sarah and I heard more than once this fall from exasperated Sellers. (NO, that's not what we're saying.)
The fact is your house is worth what the market will bear WHEN YOU DECIDE TO SELL IT! Expecting bygone results is unrealistic, and we're unwilling to tell you differently. If that costs us the listing (and it often does) so be it. We'd rather have the difficult conversations upfront, instead of waiting months to have the market "educate" you otherwise.
Perhaps a highly successful builder put it best when I ran into his darling family up in Pt. Reyes unexpectedly a few weeks back. We chatted for a few moments, and when I asked him how his business was weathering the downturn, he said (I'm paraphrasing): "We have about 20 projects in the works including a couple of $10 million estates in Napa . . . "
"So what are your projections for those?" I asked, ever curious when it comes to real estate, especially high-end, luxury dream homes.
He smiled, paused, and said, "I'm going to hold them for a few years as it's pointless to chase a market that DOESN'T exist." (Thank you, I couldn't have said it better myself.)
Given that hindsight is 20/20, timing the marketplace is virtually impossible. If you got lucky and sold your home during the run-up, good for you, but barring another pandemic, coupled with interest rates below 3%, none of us should expect the spring markets of 2021 & 2022 to return anytime too soon - if ever again.
In the end, we work with the market at hand - and that's a wrap!
See you in the new year and please send along anyone you believe we can help. Your referrals are the lifeline of our practice and we appreciate them!
Julie Gardner, has been writing The Perspective for 18 years and has published more than 670 essays on life and real estate.