Using a soccer commentators’ cliché, 2022 was a “game of two halves”. The first half of 2022 was a continuation of the very strong seller’s market we saw in 2021. The second half was impacted by rising mortgage interest rates combined with high recent price appreciation and saw the real estate market revert to a more balanced market.
Looking back at our 2021/2022 Market Review our two key predictions for 2022 were firstly for a similar housing market throughout 2022 to what was seen in 2021 with the possibility of decreasing supply as the year unfolds and secondly, the [high] number of homes sales [seen in 2021 and 2022] will stabilize at a lower level than we currently see as sellers, taking advantage of high prices, will be replaced by the normal cycle of downsizing, move-up, and relocating sellers.
Our first prediction was true for the first half of the year with a similar market in 2022 compared to 2021 but was derailed by the rapid rise in mortgage interest rates in the second half of the year compounded by the high price appreciation seen in 2021. Our second prediction was correct with a 17% reduction in the number of homes sales in 2022 compared to 2021.
Given these characteristics many of the key performance metrics – days on the market and sale price/list price ratio - showed a relatively strong market in 2022. But closer examination shows a decline in these metrics as the second half of the year unfolded. The sale price/list price ratio peaked at 116% in May and was at 107% for the full year, but it was at about 100% per month throughout the second half of the year. The average sale price increased by 7% in the first half of the year, but it was flat in the second half. Overall, the average adjusted sale price appreciation was 1-2% for the full year compared to 10% in 2021.
How should we view these numbers? Home sales have reverted to 2018/2019 levels (as anticipated). A 100% sales price/list price ratio was the value seen through each year from 2013-2020. Days on the market were consistent throughout the year at about 17 days (2021 value was 28 days). And so, if we view these against the gloom and doom of the national real estate market it’s clear that the Lexington market weathered the market turmoil caused by the rapid rise in mortgage interest rates very well. Proving that the adage ‘Real Estate is local’ is accurate.
One market worth highlighting is the luxury market (sales over $2.5 million). In 2022 the total number of home sales declined by 17% overall, the luxury market saw a 5% increase in sales and a corresponding strengthening in key performance metrics.
As we look forward what will 2023 bring? Mortgage interest rates are moving downwards with 5.2% predicted by the end of the year and so with less sellers and less hesitant buyers we predict that the overall housing market will revert to the stable market condition seen prior to the COVID years of 2020 and 2021.