What is a market correction and are we experiencing it in Fairfield County? With boots on the ground and the latest stats, here is the state of affairs with the real estate market locally.
It has been a wild ride these last few years in real estate with bidding wars, low interest rates and accelerated increase in home prices. The market has seen a “correction” although mild in Fairfield County due to the increase in interest rates that are at its highest level in 20 years!
With that said, locally, we are still experiencing multiple offers for homes that are in sought-after areas, move-in condition and/or priced appropriately. While homes may not be taking offers within 3 days which was experienced during the pandemic, they do take offers within weeks. Days on market are still low (Fairfield 45 days, Westport 55 days, Easton 57 days, Weston 57 days, Wilton 48 days) showing that homes are selling quickly and under 2 months. Month Supply of inventory, which is the amount of time it would take to sell all the current inventory on the market based on the current sales rate, is still running 3 months or lower. A balanced market is 5 to 6 months of inventory and here are the stats by town:
Months of Inventory
Fairfield 2.2 months
Westport 2.7 months
Weston 2.5 months
Easton 3.2 months
Wilton 1.9 months
The 3 factors dictating the current market are interest rates, inventory and demand. All 3 factors affect home prices.
Interest rates have increased from 3% to 7% this year, the fastest rise in 50 years. The expectation is that interest rates will continue to rise into next year but the rapid rate of increase is likely behind us. Inflation is the driving force of the mortgage interest rates. The Fed influences the mortgage rate through their policy of raising the fed funds rate to control inflation. The Fed is still predicting to tighten its policy into next year until they have inflation in check.
Interest rates has affected the demand for homes in 2022. Home affordability has taken a hit with the rise in rates. With all that said, there are still people that want to buy a home, it’s just not the frenzy of 2021. The perspective of many buyers is that they can buy a home now, and refinance in the next few years when rates go down. They can build their home equity over time and guarantee a monthly housing cost through a set mortgage payment. Homeownership is the best defense against inflation.
Variable rate mortgages are also back on the scene offering 7 or 10 year fixed rates before they go variable, which are substantially lower than the 30 year fixed mortgage. Statistics show many buyers will refinance within that 7 to 10 year time period.
One question I receive all the time is how high will interest rates go? Many ask if we will be at a point of double digits percentages we haven’t seen since the 1980’s. This is unlikely in today’s economy. The forecast for next year is that the 7% rate will stay with us throughout 2023. Within the next 2 years, top economists are predicting that rates should return to 5 ½% to 6%.
Nadia Evangelou, NAR Senior Economist and Director of Forecasting, states:
“In real terms, after adjusting the median home price for inflation, the monthly mortgage payment was about $450 higher in 1982 than it is today. If mortgage rates were currently 9%, the monthly mortgage payment would be comparable to 1982 rates. Thus, in real values, current buyers pay less for their home purchase than buyers who purchased their home 40 years ago.”
Inventory is what continues to drive this market. All towns are still struggling for inventory. When a new home comes on the market, it tends to be absorbed quickly (assuming it’s priced appropriately). Inventory is down from last year:
Inventory Levels Oct 2022
Fairfield 160 (-26.6%)
Westport 115 (-37.2%)
Weston 47 (-34.7%)
Easton 34 (-29.2%)
Wilton 50 (-45.1%)
By all markers, it is still a seller’s market. We are inching our way to a normalized market and we won’t get there until inventory increases. The forecast is that it will take a few years to get to that point.
The demand for home ownership remains strong. The shift in work from home lifestyle has added to the increase demand in suburban areas. The activity is strong and that is proven through how quickly homes are continuing to sell. While the demand is lower than it was in 2021 due to the rise in interest rates, homes are still receiving offers in weeks and many times more than one offer.
Home prices are difficult to predict in 2023 due to the unstable economy and the expectation of a recession. Top economists from NAR (National Assoc of Realtors), Fannie Mae, Zelman, Mortgage Bankers Association vary in their predictions. The average of the forecasters is basically flat. That is a national number. If the towns in Fairfield County continues to struggle with inventory, prices will continue to rise modestly.
All towns had median home sale price increases year-to-date:
Fairfield $792,500 +7.1%
Westport. $2,000,000 +29.0%
Easton $875,000 +21.5%
Weston $1,167,500 +12.7%
Wilton $1,003,000 +7.2%
The market in Fairfield County is in a correction period. The market trends over the last 3 years when money was inexpensive to borrow flooded the market with buyers who absorbed the inventory. We couldn’t withstand that level of activity and home prices had to get to a point of maintaining. The rise in interest rates has slowed down the home price appreciation.
The best quote I saw recently was: Buyer’s are acting like its 2008. Seller’s are acting like its 2021. Much of this is driven by media headlines and the perception of the housing market. Understanding the local market will help manage your expectations. The best advice I have is to listen to the experts and examine market trends; all would benefit in making a decision to buy or sell. Thinking of buying or selling?