What is going to happen to our local real estate market here in Greater Lafayette Indiana in 2023?
I want to give you a quick update on where the local real estate market stands and where it’s headed throughout 2023. In order to do that, we need to look at what happened to the real estate market in 2022.
2022 was a year of a changing real estate market. The year started off with very strong sales, home values appreciating very quickly, and many multiple-offer situations. Throughout the first five months of the year, we saw substantial growth in home values and the number of homes sold.
This all changed in June when interest rates began to rise. We saw the real estate market begin to shift and act differently.
In 2022, we saw 2,175 homes sold here in Tippecanoe County, which is the main area that we focus on. This was nearly a 16% decrease compared to 2021 when we saw 2,520 homes sold in Tippecanoe County.
Home values did continue to appreciate at a higher-than-normal rate in 2022 at 13.86%. In 2022, the median sales price was $250,000 compared to $219,900 in 2021. However, home appreciation did slow down some throughout the year. In December, the average sales price was up 13% compared to the previous December. This is good news, as anywhere between 2% and 4% is considered normal here in Central Indiana.
The average days on market in 2022 was 15 days, however, the median days after you filter out the highs and the lows were only 4 days which is still very, very quick. We are now seeing the market change and I do expect the days on market to go up in 2023.
As I mentioned, the real estate market changed throughout 2022 which was driven primarily by interest rates. We started out the year with the average interest rate throughout the United States right around 3.2%, and as we finished out 2022, it was around 6.5%.
What do we plan to see in 2023?
A recent poll of real estate experts provided mixed projections and opinions at the national level. Some experts expect home values to go up 5% while others expect home values to go down 5%. Overall, the majority of the experts did predict home value depreciation between 0% and 5%.
While that might be what we see on a nationwide average, I don’t think that will happen here in our local Greater Lafayette Indiana real estate market. In some markets throughout the United States, home values increased by 20 to 30% year over year for a few years. As I’ve mentioned, we did not see that extreme here in Tippecanoe County. In 2022, our values went up 13.86% followed by 12.86% in 2021, and 7.14% in 2020. The markets that had the 20 to 30% appreciation are already seeing their home values decrease, which we’re not seeing here. I believe in 2023, we’re going to see appreciation in the 2% to 4% range, which is normal and great for affordability.
Historically, we’ve only seen a few years where home values depreciated here in our local market. It was just a small drop of 4% in 2009. That was during an extremely different market than what we’re in today. In 2009 there was an excessive number of homes for sale, and today we still do not have enough homes for sale.
We are already seeing interest rates start to decrease and may continue to see this trend throughout the year. Mortgage interest rates follow the Fed rate. Over the last 20 years, the average gap between the mortgage rates and the Fed rate has been 1.79%. In the last 7 months, this gap has averaged 2.79%. The gap has been larger because of the uncertainty of inflation and the possibility of the Fed continuing to raise rates. Inflation is starting to cool off and there is starting to be more certainty. I believe the 2.79% gap will start to shrink which will allow for lower mortgage rates. If we were at a 1.79% difference between the Fed rate and mortgage rates, interest rates would be at 5.5% today.
If interest rates start to decrease, I believe the real estate market will stabilize. Again, I don’t think home values will skyrocket, however, I don’t believe they will go down. I think we’ll have a more stable year this year.
Please reach out with any questions about your specific situation or property. Your location, home, and price point are going to vary from the entire market as a whole.
For up-to-date information on YOUR Indiana area neighborhood or a FREE Seller Consultation – call The Romanski Group at (765) 293.9300. Using an experienced team is the way to get your home SOLD! You deserve the BEST Real Estate Team in the Lafayette Indiana area!