Things have certainly changed since our predictions post for 2022! After a whirlwind couple of years, Bozeman's real estate market finally started to calm down. This began in the spring of 2022 when home sale prices started to decrease nationwide, as well as in Bozeman. When interest rates began to rise, buyers hit the pause button. As we approach 2023, now more than ever it’s hard to forecast what this next year will bring. Here are five predictions for the real estate market in Bozeman, Montana in 2023.
1) REAL ESTATE WILL PICK BACK UP THIS SPRING
While not all experts are predicting this, most of our agents believe real estate in Bozeman will pick back up come spring. After two years of a crazy market, we are experiencing the return of seasonal trends with the normal winter slowdown. Currently, in Bozeman, we are seeing more price reductions and an increase in days on market. However, there is still a shortage of inventory in Bozeman which means we haven’t seen prices go down significantly. Experts predict that by the late second quarter or early third quarter of 2023, we will likely see interest rates come down to more manageable numbers and buyers that have been holding off will jump back into the market. This means we will probably start to see fewer price reductions, seller credits, and buy-downs like we experienced this past fall.
To add to the inventory shortage in Bozeman, we have seen many developers hit the pause button and pull out of projects they had going when the market slowed down. This will add to the lack of housing supply when buyers start to enter the market again. While no one expects things to go back to a pre-pandemic frenzy, they do see things picking back up.
2) INTEREST RATES WILL START TO COME DOWN
Most experts predict that interest rates will start to stabilize and even come down as we approach the end of the second quarter. They still have not reached historical highs and buyers are adjusting to the idea that they aren’t going to come down to what they were pre-pandemic. Home prices were rising to unsustainable levels pushing many buyers out of the market. When interest rates started rising so quickly, many had to stop their home search. As we start the new year, many believe we will see buyers emerge to take advantage of the lower home prices. In Bozeman, we have seen the median sales price of a home decrease for the third month in a row. This makes the market start to look more appealing to buyers, especially if interest rates come down.
3) HOME SALE PRICES WILL COME DOWN NATIONALLY
This is where forecasters disagree on what's to come. Nearly all experts agree that the slowdown in home sales will continue in 2023 and days on market will go back to normal levels. (Last January in Bozeman average days on market was just 4 days!)* Beyond that, there is more discrepancy in opinions. One consulting firm, KPMG LLP calls for prices to fall 20% and another, Goldman Sachs Group, forecasts only a 7.5% drop. Fannie Mae predicts they will fall 1.5% and the National Association of Realtors is predicting a 1.2% increase in existing home prices.**
In Bozeman, we saw home prices nearly double in two years, so there are some agents who predict there is potential for things to really come down. A lot of it will be determined by what the economy does. If inflation and rates continue to rise, the slump we saw this summer in the housing market could continue well into 2023. Bozeman could stay fairly insulated because the demand to move here remains strong. Nationally, home sales have dropped for 9 months straight, while here in Bozeman we have really seen things stabilize more than drop. Most agree that Bozeman will remain a popular place to move, making it less likely to see any major drop in home prices.
4) BOZEMAN WILL LEAN TOWARDS A BUYER'S MARKET, BUT NOT FOR LONG
With many people waiting things out, buyers who enter the market right now have more opportunities to negotiate. This is a huge difference from last year when sellers held all the cards. Currently, many people who have been thinking about selling are staying put because they are probably locked into a better interest rate. If they have to sell it is most likely due to a life event which means they need to move and this again leans in favor of buyers.
If prices continue to ease and interest rates come down we will start to see buyers who have put their house hunt on hold begin to emerge. This would mean inventory will go back down and we could be back to multiple offers and fewer price reductions. No one expects this to be what it was the past two years, but many predict values will start to pick back up. There will likely continue to be a housing shortage in Bozeman for the foreseeable future which lends itself to a seller's market.
5) THE BUBBLE IS NOT BURSTING
Real estate in 2023 will be impacted the most by what happens with inflation and how it is triggering interest rate increases. Home prices have fallen, even in Bozeman but we are still well above pre-pandemic prices. Interest rates are high but not at historical highs. The last two years of real estate were not normal, so as we adjust back to how things used to be it’s easy to get concerned that the bubble is bursting. Most experts believe this to be a correction and as we enter spring, real estate will pick back up. Bozeman and other high-desire areas are most likely to see this rebound in the market first. And, while many would like to see a bigger correction in real estate prices in the Gallatin Valley, it is unlikely.
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*Big Sky Country MLS
**Wall Street Journal "What is Going on With the Housing Market?
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