First, I would like to wish all my readers a Happy and Healthy 2023!
The real estate market this year is going to look a lot different than the 2022 market, which saw things get very unbalanced – leading to record high prices early in the year, only to see the pendulum swing the other way as we closed out the year with low activity and pricing adjusting downwards.
Reading and listening to the various real estate updates and predictions can be dizzying and confusing, as national statistics are a lot different than local statistics, and I think there might be a few overly optimistic realtors out there as well that are wishing for things to suddenly get better, rather than basing their predictions on actual data and what we are seeing on the ground.
The Centre Wellington market is certainly in transition, and the lack of sales in our area in the final quarter of 2022 is very telling, yet makes it difficult to predict the extent of pricing changes we are going to see in 2023. But looking at more regional data like Kitchener Waterloo where prices have dropped by up to 35% since the highs of early 2022 suggests our market will need to adjust downward further to remain competitive with the markets around us.
There is definitely a correlation between the fact our sales activity has been lower than neighbouring markets (adjusting for population) and the fact our prices have not yet adjusted downward as much as these same markets. Simply put, the data suggests pricing in Centre Wellington will drop further in 2023, the question is how much?
A lot of factors are at play here, including how the overall economy will perform in 2023. It does look like interest rate increases are close to coming to an end. But a further average price adjustment of 10% or more is not out of the question for our area. Pricing adjustments on some homes will be even higher.
When you analyze markets like Kitchener Waterloo, it is interesting to note the number of sales under $700,000. This is the challenge in Centre Wellington wherein we do not have a lot of inventory under $700,000. But I am predicting that we will see enough of a price adjustment in 2023 where more detached homes will start selling under that dollar figure (smaller older detached bungalows, sidesplits, etc.). And we will start to see more attached homes (i.e. older townhomes) selling at $600,000 and under again.
When the market hit peak in early 2022, we also saw a number of larger/newer subdivision homes sell for over $1 million. Subdivision homes will see some of the biggest downward price adjustments in 2023, with many of those same subdivision homes selling for under $1 million, significantly so in some cases. In my opinion, much of the decrease in prices will occur in the first half of 2023, with pricing starting to level out in the final half of 2023.
The one wildcard here will be inventory levels. If inventory levels start to spike higher than expected in April and May, downward price pressure could continue into the last half of 2023. The higher end of the market will continue to be somewhat challenging in 2023. But just like any market, the nicest homes or homes that have been updated, combined with the right staging and marketing strategies, will outperform the average. In short, homes that stand out in their price category will do better.
As a quick aside, what the market considers “updated” and renovation costs needs addressed. Certain sellers will still consider 10-15 year old renos as updates. The reality is the market today does not. And the cost of updating has changed significantly. You will now have a situation where an updated home on the street sells for, say, $900,000, and the seller of another property on the same street, while understanding updates are required, wants to list at $850,000 using the $900,000 home as a comparable, not understanding today’s costs (as it may have been 15 years since they last did any updates).
Folks, unfortunately $50,000 doesn’t go far anymore. Renovations well north of $100,000 … even $200,000+ are more frequent in today’s world (especially if you are talking a complete kitchen, bathrooms, flooring package update). That is an ouch. And that $850,000 list price should be more like $800,000 or less.
Keeping your home regularly updated/improved in stages is ideal, yet I understand many people’s budgets are stretched these days, and renos are not in the cards. My point is then you will have to adjust your listing price accordingly, given the kind of market we are in now – and probably will be in the foreseeable future. Yes, I know people were buying anything for top dollar in early 2022 regardless of updates. Those days are gone.
To be clear, the buyers are still out there, but many are simply reluctant to jump quickly. Once the overall feeling in the market is ‘things are hitting near the bottom’, activity will pick up, and the market will stabilize. Each market will be different timing wise. Most importantly, sellers must be willing to price according to the current market. Otherwise, your home will sit on the market, and you will end up selling for even less than if you pull the bandage off and do the significant price adjustment now.
Not fun advice for a listing agent to give – but advice that needs to be given if the seller wants to actually sell their home. My other advice may be surprising. List early this year. Keep in mind that I said this last year too. But the reasoning for 2023 is totally different.
For 2022, my reasoning was I thought there was an increasing probability that the market was going to peak early in the year. Turns out I was right. This year, my concern is the possibility of inventory levels going higher than predicted in April/May, resulting in even lower pricing than predicted. And given there is little probability that prices are going up anytime soon would suggest there is little downside risk to listing earlier in the year.
Will buyers finally be ready to jump? Well, we are about to find out shortly. One other surprising prediction. You are going to see the return of the “holding offers” selling strategy on certain homes again in Centre Wellington in 2023. It’s going to be an interesting year.
Thinking of selling or just want to chat about your real estate needs? Call me anytime at 519-766-3716.
Until next month, take care.