Did you know that in early 2022, the median home price in the United States was $428,700? That is an increase of nearly $100,000 in just over a year.
It is not just the nation that is seeing a boom in the real estate market. Memphis real estate has seen its own share of rising trends.
For those that have been sitting on the sideline, seeing recent Memphis real estate trends may have made you interested in getting in on the action.
The question is, how can you predict what is going to happen in 2023? Well, this guide can help show you what to expect next year.
The first thing of note that you need to see in Memphis real estate is the current inventory. At the time of writing, we have numbers for this up until the end of October 2022.
In that month, Memphis had nearly 700 more houses available to be sold than they did in the same month during 2021. This was the first month in about two years that had more than 3,000 houses available.
It is normal for October to have more houses available than months in the winter and spring. However, 2022 as a whole has had more inventory every month compared to the same month in 2021.
One of the most notable jumps was from June to July 2022. In that time, the inventory increased by 500 houses. From month to month in other parts of the year, there was typically an increase of no more than 200 houses.
Since July, the inventory has been steadily increasing and it has gone up by another 200 houses since then. What this is telling you is that for buyers, there are more houses available now than there were at the same point last year.
It could make it a little easier for buyers to purchase a home and thus, the demand for the houses currently on the market is not going to be as high as they were last year if this trend continues.
Increase in Foreclosures
Relating to the inventory statistics above, foreclosures have also gone up in 2022 compared to 2021. In Memphis, there were 42 houses foreclosed on in October of 2022. During that same month in 2021, only 28 houses were foreclosed on.
That was a 50% increase. For the entire year, the number of foreclosed houses went up by 46.8%. It increased from 248 houses in 2021 to 364 houses in 2022.
So, what does this all mean? Well, there are two big things to take away from this.
The first is that it appears that fewer people can afford to remain in the houses that they already own. When a house goes into foreclosure, it means that the people that own the home do not have the financial capability of keeping up with the mortgage payments and/or any other debt that they may already be in.
The second thing to take away from this is that it can contribute to a potential drop in demand for houses in the market. This is because foreclosed homes tend to get sold at a discount in an auction. After all, they know that the person who owns the home (the debt collector) is looking to get rid of it.
So, this can impact you as a real estate investor if you are trying to sell living space against these houses.
Rising Mortgage Rates
Going off of both points above, there is another reason why people may not be able to afford homes at the prices they used to. This big reason is that mortgage rates have risen rapidly in the past year.
In November 2020, you could get a mortgage rate of as low as 2.7%. Now, that number has practically tripled to nearly 7%!
This means that any potential buyer has to consider the interest that they are paying on their mortgages much more than they did two years ago.
To show you the difference, let’s compared both of these percentages on a 30-year fixed mortgage. On top of this, we will say that the price of the home was $400,000 in both cases.
With a 2.7% mortgage rate, you are paying about $1,300 per month in mortgage payments and your total interest is going to be just over $147,000.
Now, let’s see what these numbers look like with 7% interest. The monthly mortgage payment goes up to just over $2,100 and the total interest is over $446,000!
That means that your monthly mortgage payments have increased by about $800 and your total interest paid has tripled. Essentially, people could buy 1.5 homes worth $400,000 in 2020 for the money they have to put into one home at that price now.
It has become a much more serious financial decision than just a few years ago and that can cause people to be more hesitant about buying a home.
So, with everything noted so far, you may be wondering how many houses actually got sold this year. Well, the answer is 17,367. Compared to this time in 2021, there were 18,761 houses sold back then.
That means there has been a sales decline of 7.3%. Now, let’s take a look at the number of houses sold in October 2022 compared to October 2021.
Last month, there were 1,456 houses sold compared to 1,957 houses sold in October of 2021. That means that compared to the same month last year, there has been a decline of nearly 25% in houses sold.
What these numbers are telling you is that it confirms the suspicions that have been raised above. It is getting harder to move a house and they are not selling as rapidly as they did last year.
If this pace keeps up, you will have to start questioning if this is going to continue in 2023.
Now, let’s take a look at the sales prices of Memphis homes sold. The median numbers tell two different stories.
For the overall year, 2022 has been better than 2021. The median home price is $220,000 this year compared to $201,000 in 2021.
However, if you are just looking at October prices in both years, then this is a different story. The median home price decreased by $15,000 in October 2022 compared to October 2021.
That could mean that most of the median from 2022 was higher in the earlier half of the year and it has potentially seen a decline in the latter half of the year.
Now, let’s take a look at the average price of homes in Memphis. For both the October month and the overall year, this increased.
From 2021 to 2022, the average price of a home in Memphis increased by 10.6%. In October 2022, the average price of a home was 2% higher compared to the cost of a home in 2021.
What could this mean? This could lead to the possibility of homes in the lower price ranges lowering in value while the homes in higher price ranges continue to increase in value.
That could be an important piece of information to have as an investor if you are conflicted about getting into luxury real estate versus regular real estate. The point is that if you compare the median price and the average price, there is no easy answer as to which one will continue in 2023.
If you are going to invest in a big city, you want to invest in a neighborhood that is on the rise. That is why you need to pay attention to what neighborhoods saw a good increase in 2022 and which ones could be sliding under the radar.
The neighborhood that stood out among the rest in 2022 was Lakeland. The median home price in Lakeland increased by 68% from 2021 to 2022. What was about a $327,000 house that can now be sold for $550,000 around there?
Another neighborhood that stands out when it comes to a steady rise in 2022 is Millington. The median home price increased by over 40% this year compared to 2021. A house in this neighborhood can be sold for $260,000 compared to $185,000 the year prior.
Something you may also want to note is a neighborhood that did not have the best year. One of the only two neighborhoods in Memphis to decline in median home price value was Fayette County. It decreased by about $20,000, so you could potentially get a better deal next year to buy real estate there.
Invest in Memphis Real Estate
These are some of the most notable things about Memphis real estate heading into 2023. Average home prices seem to be doing well compared to median home prices.
However, inventory and foreclosures continue to increase. Plus, mortgage rates are increasing even faster, so houses could potentially decrease in value next year.
Do you want to know more about the real estate market? Message us today with any questions you might have.