At the end of last year, as the world reflected on 2022 and prophesied about 2023, the pundits produced countless reports detailing 2022 as a year of lows for the real estate market.

The headlines sensationalized a world marked by uncertainty, market crashes and an imminent recession. We watched macroeconomic factors, namely interest rates, rise, along with the cost of living, and the workforce battle employers for remote opportunities to remain a viable, sustainable option.

Why wouldn’t we believe these reports and predictions? Well, these headlines exposed a lack of familiarity with the market rather than an intimate understanding of it. There were crucial factors missing from these reports – context and a reasonable historic lens from which to study, analyze and convey the current and future state of the real estate housing market.

It is true that 2022 saw fewer transactions, but only when compared to the economic black swan years of 2021 and 2020. Through a broader historical lens offering more historical context, 2022 generated significant market restabilization and health while beating historical averages dating back to 2013.

As we make our way through 2023, we are seeing the market sustain expected, inevitable turbulence as buyers weigh the cost of purchasing a home with elevated interest rates and sellers remaining steadfast in their perceived value of their home. This turbulence is what is helping stabilize the housing market and, based on the current transactional data, 2023 looks like it will stay on par with historical averages, or perhaps even surpass them.

The market absorption of quality inventory in our desirable geographic region remains hugely influential, resulting in thoughtful, well-prepared, competitive buyers willing to pay a premium for a home, but not with the same unbalanced terms we experienced in the last three years. Inspections, home sale contingencies and stricter financing terms, including appraisals, are resurfacing at every price point. This shift toward the pre-pandemic market has triggered an extended timeline for the buying cycle as buyers require more time to close in order to satisfy every element of their contract.

Over the next year, we anticipate the Federal Reserve to keep interest rates high, potentially even continuing to raise them. This factor leads to two possible scenarios, the first being homeowners who purchased a home in the low-interest rate markets of 2020 and 2021 being less inclined to sell. This is understandable as the replacement to the home they sell could mean engaging with higher interest rates. The second possible scenario showcases a consistent historical theme reflecting a market fueled by low inventory and high demand, where cash-rich buyers have a strong advantage.

There is always an alternative theory. The rise in interest rates helped control an inflationary market, so we may see the Federal Reserve respond with a decrease in interest rates. Additional factors help make this option a potential reality: the stabilization of home prices (down about 10 percent from 2020 and 2021), low inventory coupled with pent-up demand and the falling price of lumber (down about 60 percent from the historic highs we saw during the pandemic) incentivizing developers to open up the market by increasing available supply towards the end of this year and into 2024.

When analyzing the state of the current real estate housing market, we need to remember that pre-pandemic trade rates contain crucial data and context that help us better predict the future six to 18 months. This historic lens allows us to see that 2022 and 2023 did not plummet us into a market crash or global recession, but rather gradually returned us to a healthy equilibrium.

Our market continues to stabilize based on “normal” economic conditions rather than the extreme, meteoric conditions we saw during the pandemic. This is evidenced in homeowners holding on to their homes as they enjoy the equity they have built over the past couple of years, thoughtful buyers demonstrating increased patience in their buying cycle and stronger development rates, due to the decline in lumber prices, generating an uptick in new construction transactions.

Lisa Riley is director of operations for Halliday Real Estate of Bean Group in Peterborough.

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