The 2023 Greater Columbus real estate market has been most influenced by three main factors – mortgage interest rates, low inventory of existing homes for sale, and large investments such as the Intel chip manufacturing plant, Honda – LG battery manufacturing, and a slew of data warehouses from Amazon, Google, and Microsoft.
Mortgage interest rates started 2022 near historical lows at 3.24% average for a 30 fixed mortgage and peaked in mid-October of 2023 at over 8% according to Mortgage News Daily. This rapid increase in rates drove many would-be sellers to stay put, since most had either purchased or refinanced with rates near the lows. Whether it was an emotional reaction, the fact that affordability had dropped dramatically, or a combination of both, this staying put drove the second factor, low inventory.
The number of existing homes for sale in 2023 was low, though it was actually higher than the inventory in both 2022 and 2021. This would lead you to think that the number of sales would be higher with more inventory, but the total number of homes sold was down 14% compared to 2022. The best explanation for this decrease in sales is 2 – fold: first, existing home sellers who would have traded up decided not to do so for fear of losing their low mortgage interest rates, and second, many would be first time home buyers were not able to purchase because of the rapid rise in interest rates combined with the approximately 5% increase in prices significantly reduced affordability.
The last major factor driving our real estate market was the major investments by Intel and others. The scale of the investment is the largest ever seen in our region and is likely to turn out to be larger than even forecasted. The announcement by Intel kicked off a deluge of announcements by other large corporations and the compounded effect is transforming Central Ohio into an Employment HUB and will push growth rates for at least the next 10 years. One analyst told me that Central Ohio is likely to experience growth rates for the next 10 years like what Austin, Texas experienced for the past 10 years. When you look at Austin, until this past year, their real estate prices have grown around 11% per year. While we may not see that level of appreciation exactly, I would expect that we’ll be well above the National historical average of 4% per year.
Looking forward, most economists are predicting that mortgage interest rates will be falling – they’ve already fallen into the mid – 6% range and I can see them falling into the mid – 5% range by late Spring, or early Summer 2024 (It is an election year after all). If that happens, that should loosen up some of the inventory for those that have been waiting for interest rates to fall and increase inventory. The combination of higher inventory and lower rates will bring more home buyers into the market and that will continue to drive prices up.
What does all of this mean? I believe that it means that the best time to buy or trade up in real estate is now. Those who do not purchase risk missing out on the appreciation roller coaster. At best they will have to pay more for a home later, and at worst, they may be permanently priced out of home ownership.
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