With the combination of several ideal conditions, the white-hot real estate market this past year was likely a once-in-a-lifetime occurrence.

Even if you live under a rock, you’ve probably still had someone tell you recently, “now is the time to sell!” Record low mortgage rates and inventory levels, coupled with sky-high demand and inflation are all culprits to blame for the recent buying frenzy and resulting value appreciation.

Towards the end of 2021, however, sales started to slow, and low inventory was the only factor keeping prices high. In fact, the total number of sales from August to December of 2021 was about 13% lower than that date range in 2020, according to the Southwest Florida MLS.

Then, in January of 2022, the region saw an even sharper decline in sales. Going from 3,566 total sales in December of 2021 to 2,546 sales in January–a nearly 30% decrease.

Number of Sales. Southwest Florida MLS Stats.

Inventory, Rates & Price Intolerance

The main reason for this is a recent rise in mortgage rates. Since ending the year around 3%, the average rate now is 3.6%. This seemingly insignificant increase will raise the average mortgage payment by over $100 per month. The recent rate increases only added fuel a fire that was already beginning to burn: price intolerance. Scores of buyers, along with would-be sellers, have opted to hold off until the buying market cools down. Renters can justify continuing to pay high rent prices if they think they can get a better deal buying a home in the future, while current homeowners are worried that their house will sell before they find something new. These factors decrease demand while keeping inventory levels in check. This, in turn, stabilizes prices while we transition out of this buying frenzy.

Months of Inventory. Southwest Florida MLS Stats.

As shown in the graph above, inventory levels have actually been climbing since the middle of 2021. Overall, we’re still very low on inventory, but this is one step closer to a more balanced market.

In short, well-priced homes are still ‘flying off the shelves,’ but we’re not seeing as many of the cut-throat bidding wars of mid-2021. For homeowners who have been weary about entering this market: you haven’t missed the gravy train yet, and buying your next home is now a bit easier. For buyers on the fence, the inventory crisis will take a long time to noticeably improve, and the Federal Reserve is planning multiple rate hikes this year. This could cause home prices to slightly dip by 2023, but that savings will quickly be eaten up by substantially higher mortgage rates.