Rick Seese has more than 40 years experience working in real estate market, and each month, he shares the latest news and outlook for Lowell-area housing market.
January 2023 Edition
-My Perspective – 2023 Outlook
-The Latest Area Market Statistics
-Monthly Summary – What Does All This Mean?
My Perspective – 2023 Outlook
The economic rollercoaster will continue into 2023 as we are not finished with inflation. Yes, the Consumer Price Index (CPI) report from this past Thursday was positive, as it appears that inflation is on a downward trend, but our inflation rate remains more than three times higher (6.5%) than the Federal Reserve’s (FED) target (2.0%). I expect more interest rate increases in the short term until the Federal Reserve (FED) feels more comfortable with reports and indicators. Hopefully, a couple .25% increases will continue the downward momentum.
The jobs report continues inching upward and the unemployment rate inched downward last week, which is the opposite direction hoped and expected. I believe that employers are likely absorbing excess employees at the moment, as they know how difficult it is to hire new employees. That mindset is about to end, as we will likely see the unemployment rate grow from the current 3.5% toward 4.0% or higher by mid-year.
As the FED continues with smaller interest rate increases, we will most likely experience a brief and mild recession, but West Michigan will most likely not miss a beat. Real estate will experience a slight drop in Average Sale Prices over the next few months within our focus area school district markets, but those decreases will be more applicable to less high-end residential sales that always support higher Average Sale Prices. Many areas outside of West Michigan will experience larger decreases, depending on their local demand and inventory.
We may be entering the most crucial time frame of the FED intervention. Price pressures are subsiding as higher borrowing costs cool demand, and supply chains continue to ease. However, the FED needs to orchestrate the mechanics of a soft landing to skirt a longer and deeper recession.
Here are our final 2022 Average Sale Prices for each of our focus area school districts. All our focus areas had a slight decrease in Average Sale Prices from last month. The Entire MLS had a slight increase. Among our four largest focus area school districts, Lowell and Rockford posted annual year-over-year increases of 14%. Forest Hills followed with a 9% increase and Caledonia posted a 7% increase. In comparison, the Entire MLS had an annual increase of Average Sale Prices of 10%. Most of the Grand Rapids and West Michigan market areas ended 2022 with higher Average Sale Prices than year-end 2021. However, the 4th quarter of 2022 was either flat or had smaller increases, due to the increase of interest rates and the overall slowing of demand.
Here are the final Average Sale Prices by Surrounding Townships for year ending 2022. The Lowell School District takes up a portion of each of these townships, except Vergennes and Lowell, where the entire townships are encompassed by the Lowell School District. As you can see, our surrounding townships have higher average sale prices compared to the total MLS, except Boston Township and Keene Township in Ionia County. All our surrounding area townships experienced 12-Month Rolling Average increases over last month, except Grattan Township and Keene Townships. Vergennes Township led the annual increases with a 19% increase. Lowell Township was the next highest increase at 18%. Ada, Bowne and Cascade Townships followed with 15%, 14% and 13% respectively. The Entire MLS increased 10%.
“Months of Supply” refers to the number of months it would take for the current inventory of homes on the market to sell given the current sales pace. Historically, five to six months of supply is associated with moderate price appreciation, and a lower level of month’s supply tends to push prices up more rapidly.
Homes Currently for Sale – All our focus area school districts experienced a slight increase of Homes Currently for Sale over last month, including the Entire MLS. Some of this is expected because of the seasonality of winter and some because of lesser demand, induced by higher interest rates.
Months of Supply – All our focus areas had sizable decreases in Months of Supply from last month. Lowell decreased from 1.2 to .8. This is quite the reversal from the past few months of trending increases of Months of Supply. Higher interest rates are not affecting inventory as we remain well below normal levels of 4.0 to 6.0 Months of Supply.
New Listings – All our focus areas experienced widespread decreases of year-over-year New Listings, including the Entire MLS. Again, the seasonality of the winter market is playing a partial role in the decrease, but less demand is also causing a delay in homeowners deciding to sell.
Pending Sales are sales under contract with an accepted offer, but those transactions have not finalized yet (closed). Overall, the Entire MLS saw another sizable year-over-year decrease in Pending Sales when comparing December 2021 to December 2022. All our larger focus area school districts experienced year-over-year decreases as well. Increasing interest rates continue to slow Pending Sales locally, regionally, and statewide.
Pending Sales have now decreased within the Entire MLS for the eleventh consecutive month. Pending Sales during early 2022 were affected by lack of inventory for buyer choices. The last quarter of this year rising interest rates AND the lack of inventory have caused less Pending Sales. We will continue to watch this chart closely, as additional hikes in interest rates will continue to slow overall demand. The current mortgage rates have dropped slightly and are now hovering around 6.0% for a 30-year fixed rate or 5.0% for a 5-year adjustable rate.
January 2023 Monthly Summary
What does all this mean? Our 2022 trip through inflationary control seems to be in-line and on its way to completion. Higher interest rates are certainly slowing the economy and housing sales, which is what the FED needed to have happen. The current rates have reduced slightly to around 6% for a 30-year fixed rate and 5% for a 5-year ARM (Adjustable Rate). I expect these rates to continue for the foreseeable future. I also expect the West Michigan real estate inventory to remain low through the coming spring market, even as demand picks up after the winter months. The lack of inventory will continue to cause fewer pending sales through the remaining winter months and cause less competition as we ease into the spring market. The remainder of Michigan and national markets may be experiencing deeper market slowing than our higher demand West Michigan markets. The level of slower real estate markets will indicate the level of intenseness a recession may produce, as so many industries are tied to overall local real estate markets.
Rick Seese works with buyers and sellers of residential, commercial, and industrial real estate. He is an Associate Broker with Greenridge Realty, Inc. and has been licensed full-time for over 40 years. If you’re interested in reaching out to Rick for more information, or have a question for the monthly article, you can contact him via email ([email protected]), visit his website at www.rickseese.com or Facebook page at (www.facebook.com/Rick Seese), or call/text him at 616-437-2576.