How will Real Estate in Annapolis react as the market corrects itself?

After a prolonged period of tremendous expansion, the real estate market may appear to be on shaky ground. But history has proven that stability can often follow expansive periods—offering opportunities—if you know where to look. That is particularly true for buyers, who enter 2023 with increased bargaining power after the cutthroat competition, bidding wars, and record prices.

The move toward a slower sales pace and stabilizing prices heralds a shift that is part of the housing market’s natural cycle. Sales of newly built homes fell, and construction stalled in 2022, while sales of existing homes dropped, and mortgage applications hit a 22-year low, according to the Mortgage Bankers Association and the National Association of Realtors. But housing vacancies remained at historic lows heading into 2023, according to census data. Mortgage underwriting remains tight, negative equity is nearly nonexistent, and most loans are fixed-rate products, all of which suggest a fundamentally healthy market.

Available inventory continues to shape the Annapolis Real Estate Market

Lessons from the past suggest the outlook for 2023 may be more positive than some might think. Economists do not anticipate the free fall that we experienced in 2008.  According to the National Association of Realtors, in October 2022, 64% of houses were still selling within 30 days. They agree that it’s still a very strong market, historically.

As a shortage of Helps fuel higher home prices, we will still see a supply-and-demand issue, and that ultimately is going to push the market. There may be a slowing in the number of units, but the prices are maintaining a strong valuation. Some price corrections are expected as part of the normal balancing of scales, but those who sell their home or buy a new one will become used to the higher interest rates and the real estate business will slowly improve.

Short Term forecast for Annapolis Real Estate

In the short term, evidence from previous downturns suggests local buyers and sellers may wait for more economic clarity before making moves during the first half of 2023. This is due to factors occurring at a macroeconomic level including inflation rates, mortgages, and pressure on corporate earnings. Naturally, most people have elected to take a pause and see how the market reacts.

Another factor that could put a temporary pause on sales is tension between buyers and sellers, as the market shifts, prices grow, and the volume of sales slows. Time is the only way to bridge the disconnect in value perceptions between buyers and sellers. Think back to 2019 with unit sales levels with 2022 prices.

Annapolis home buyers will have an edge

The rise in mortgage rates and lower volume of sales affords buyers time to do their due diligence after a period of lightning-fast transactions. Buyers were previously waiving contingencies and lawyers were condoning that, so contracts were in an abnormal state. 2023 will move the Annapolis Real Estate Market back to a more normal state, where people can have a little more time to make their decisions.

This is the first time in over two years that buyers have a much greater chance of buying a property without severe competition, with the possibility of getting some negotiated lower price, and with the greater possibility of including safeguards, like a home inspection, appraisal contingency, and financing-approval contingency.

How sentiment will drive the Annapolis luxury home market

Some high-net-worth buyers may rely more on feelings than numbers when it comes to purchasing a home in an uncertain economic climate. As you move into the luxury spectrum, what you’re finding is most homes are selling without a mortgage, as the buyers can afford it.

Luxury purchases are driven by more than what is available today; sentiment and expectations of the future have an immense influence on decision-making. It's less about opportunity, but rather what Annapolis luxury buyers desire to invest in right now.

Long-Term perspective on the Annapolis market

The recent pandemic-driven property rush was reminiscent of past real estate booms, with many individuals seeing buying homes as a lucrative investment and seeking to garner immediate returns.

But property is an asset that appreciates over time. If you look at the historical run of real estate, properties have risen in value, and when you take out those little pockets of downturns, it’s still an uptick over time.

A local market correction in Annapolis can lead to a tremendous amount of fear, but the big lesson is downturns come and downturns go, and on the back end of every downturn is another period of appreciation.