What will the Rochester real estate market look like in 2023?

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A soaring housing market in 2020 and 2021 has cooled over the past year as rising home prices collided with rising interest rates; but the Greater Rochester market remains steady, according to local experts, who are optimistic about the coming year and say real estate will be driven largely by the broader economy.

Shortly after the onset of the coronavirus pandemic in mid-2020, the U.S. housing market exploded with Americans seeking to exit cities and buy larger homes. Home prices increased and purchase offers regularly far exceeded asking price as limited supply led buyers into bidding wars, but this year rapidly rising interest rates pushed some buyers out of the market and slowed sales.

Lanie Bittner, president of Greater Rochester Association of Realtors (GRAR), said there has been a “dramatic shift” in the real estate market this year, primarily driven by rising mortgage rates, which jumped from around 3% at the start of the year to more than 6%.

“That’s been the big story, the big shift, of the year — the more than doubling of interest rates over the past 11 months,” said Bittner, who is also an associate broker with Re/Max Plus. “That has adjusted peoples’ thoughts on buying a house.”

Bittner said throughout the first half of 2022, realtors continued to consistently see multiple offers on listings of all price and condition ranges, but Federal Reserve interest rate hikes that started in the spring started to impact the real estate market over the summer.

Home sale closings in New York are down steeply from a year ago and the Rochester region is no different, according to New York State Association of Realtors (NYSAR). The sky is not falling for Rochester area real estate, however, Bittner said, describing the impact of rising rates as more of a moderate pullback among buyers.

“We’re not seeing this huge decrease in the Rochester area,” Bittner said. “We still see incredible buyer demand and it continues to be a seller’s market. Certain price points and certain locations continue to see multiple offers, bidding wars, no inspections, but it’s not as prevalent as it was in the beginning of the year. It’s just been a sort of leveling out and it’s not as crazy as it was.”

Mark Siwiec, a realtor associate with Keller Williams Realty, believes 2023 will be another strong year for the local real estate market and one that continues to tilt in sellers’ favor. Siwiec said despite many buyers dropping out of the market, the remaining buyers continue to engage in bidding wars because it’s necessary.

“Some of the same insanity that has prevailed the last two and a half years continues to play out,” Siwiec said. “I think that this coming year is going to look a lot like the last two and a half years but perhaps the number of players engaged in the process of buying and selling isn’t going to be as large.”

Home values in the Rochester area continued to climb in 2022, with GRAR data indicating median sale price in the region hit $200,000 in the third quarter, a more than 11% jump from a year earlier. The Rochester region fared much better than the state as a whole, which according to NYSAR saw just a 0.5% increase in median sale prices over the past year.

Both Bittner and Siwiec said current buyers are largely comprised of individuals and families needing to move for a variety of reasons, with those who simply want to move making up a smaller portion of the market. The number of buyers started to drop precipitously in August and September of this year, Siwiec said, but the buyers still outnumber the sellers.

Lack of houses on the market has been a major theme in recent years, Bittner said, with demand consistently and significantly outpacing the number of houses available. Low inventory and rising interest rates are a statewide issue, according to NYSAR, which in November reported home inventory fell 12% from a year earlier to mark more than three years of consecutive inventory declines in year-over-year comparisons.

In the Rochester region, the number of homes for sale is in line with a year ago, according to GRAR data, but new listings have fallen more than 16%, slightly less than the statewide drop in new listings. Inventory across the region continues to lag far behind demand, Siwiec said, and that’s part of what is driving the market.

“Unless there is some sudden surge in interest on the part of homeowners to list and sell, or unless there is some sudden surge in homebuilding — and I don’t think either of those two things are going to play out — I think sellers are going to continue to dominate,” Siwiec said.

Mortgage rates will remain the foremost question hanging over the real estate market, Siwiec said. Though interest rates are expected to climb in the near-term, he noted the Mortgage Bankers Association in a late October forecast predicted mortgage rates would fall to 5.4% by the end of next year. If that is the case, many of the buyers more sensitive to interest rates who pulled back could reenter the market and 2023.

Siwiec acknowledges that there is concern rising interest rates will lead to a market correction and plummeting property values, but that’s not how he sees the next year playing out.

“I don’t see it happening,” Siwiec said of a major market correction. “When you have the number of buyers still outstripping the number of sellers there’s just not going to be any significant devaluation.”

Looking toward the future, Bittner said in addition to rising rates the continued pressure of inflation and economic uncertainty could dampen the real estate market. She believes the current market is strong, however, and expressed optimism about the coming year.

“We continue to see an active and healthy real estate market in the Rochester area,” Bittner said. “And I’m hopeful and think that will continue into 2023, but it really will be dependent on what happens with the economy.”

Bittner said Rochester continues to be a great place to buy and sell real estate regardless of the economy. She noted the regional real estate market tends to be steady, with small ups and downs compared to the wild swings in boom-bust areas like California, Florida and others.

“We don’t see the huge increases but alternatively we don’t usually see the huge crashes as well,” Bittner said. “That’s part of what keeps us affordable and part of what keeps us a great place to invest in real estate.”

Siwiec similarly said “Rochester for years has been on a slow and steady pace upward” in terms of home values, adding it’s possible areas like California, Florida and the Mountain West may experience a 10-15% market correction, but Rochester is “shielded from a lot of that.”

It could be a shrewd move on the part of buyers to purchase now while activity and competition is lower, Siwiec said, and then refinance when rates come down. Each year the real estate market tends to ramp up between the end of January and early February, and Siwiec expects that to continue in 2023 as prices and competition remain high due in large part to low inventory.

“If you can buy a house now you may find yourself doing battle with only two or three buyers instead of a dozen buyers,” Siwiec said.

Matthew Reitz is a Rochester-area freelance writer.