2023 Real Estate Market Trends
- Note: This article was made at the end of 2022 to predict the state of the real estate market in 2023. We left it as-is to give our readers a record of our insights at that time. Please check out our blog for the latest updates in our market trend predictions.
In early 2022, we saw some staggering real estate market trends. Home prices soared as inventory plummeted to a 1.6-month supply. Combined with historically low interest rates, sellers let the bidding wars ensue. We also saw remote work influence cross-state moves from expensive to more favorable markets. Demand for more spacious homes in the suburbs also climbed.
As the year comes to a close, inventory has slowly risen, and interest rates are soaring, giving buyers more leverage and options than they have had in the past 12 months.
So what can we expect in the 2023 housing market?
2023: Smoldering Coals After a Roaring Flame
What happens when the Federal Reserve pours water over the flames of the most extreme seller’s market we’ve seen in decades? Artificially suppressed demand – but with much heat still left in the market. An uptick in interest rates changes the landscape as we know it.
Higher Borrowing Rates Reduce Affordability
As of October 2022, the average fixed 30-year mortgage interest rate has climbed to over 7.1%, more than double the average of 3.22% in January 2022.
This means that more prospective buyers won’t be able to afford increased monthly mortgage payments. However, buyers in the move-up and luxury market are less sensitive to these fluctuations. Next year’s most significant challenges are affordability and buyer confidence, and sellers need to make more concessions to achieve home sales.
Higher Interest Rates Lead to Less Buyer Demand
When you take more buyers out of the competition, sellers get fewer offers. Though all inventory will feel the impact of interest rate hikes, the pinch will be felt the most in lower-priced starter homes. This can also mean that there will still be tougher competition in the entry-level market.
Sellers do have options, though.
There will still be motivated buyers since inventory still needs to be up to the 6-month sweet spot that signifies a recovered inventory. Also, investors who pay cash aren’t affected by the rate hikes. Therefore, sellers who market and list their property according to their real estate agent’s advice should be able to make it to the closing table.
Sellers Can Still Cash in This Real Estate Market
Since home values aren’t promised to decrease in every market, and if they do, it’s expected to be by a marginal amount, sellers can still cash in on historically high market prices. However, they are more likely to pay for repairs to keep a deal alive. Flexibility is a must for savvy homeowners who want to sell – and a reality check that this is no longer early 2022.
Expect More Buyer Leverage
In early 2022, bidding wars were in full swing, but in 2023, qualified buyers will be more of a rare commodity. Though housing prices are not skyrocketing, the rising interest rates are making borrowing more difficult. This will compel sellers to make accommodations they wouldn’t have had to make in a fierce seller’s market, such as accepting home inspections and assisting with repairs and closing costs.
While buyers were once forced to skip inspections and buy homes in less-than-perfect conditions, they don’t have to accept such terms anymore. Their agents should help them understand how much leverage they have in the market they pursue and form an offer accordingly. Sellers who want to get top dollar in the open market must make the transaction worth the buyer’s time, or they can find themselves without a sale.
Over-offering in home prices may also become less common as the number of qualified buyers decreases. A downturn in affordability is now a factor that gives buyers power instead of a weakness in the negotiation phase. Lender confidence will also play a vital role, since fewer buyers will be able to earn it. Even though home price growth may stabilize, u.s. home prices will feel more expensive because of the sustained interest rates.
Experts Have Mixed Opinions on Price Trajectory
Analyst predictions about high prices were spot on for 2022, and everyone is wondering if those high prices are here to stay. Though every market is different, the Fed’s interest rate hikes are supposed to cool demand and then lower prices. But will they work as intended? Only time will tell if price declines will happen in the u.s. housing market. However, here’s what we do know.
According to the NAR, as of September 2022, existing home inventory was at the 3.2 month supply – a couple of months short of the 5 to 6-month inventory mark. This can mean that home prices might not budge for a while. However, since each market is different, experts are conflicted about universal price decreases in 2023.
Every market has different demand levels, making it more critical than ever to consult a real estate agent before you buy. For a closer look, the National Association of Realtors (NAR)’s research on Metropolitan Median Area Prices and Affordability reports a variety of average home prices along with growth rates.
Nevertheless, for the 45 million millennials entering the prime first-time home-buying age, the possibility of lower prices brings a faint glimmer of hope. Overall, under these conditions, getting a single-family home purchase is advised as a long-term investment since higher prices and interest rates could mean a loss for anyone who wants to sell too quickly.
Renting vs. Owning
Rising interest rates are making monthly mortgage payments almost on par with rent prices. However, the benefits of home ownership still stand – such as the possibility to refinance. Also, current statistics affirm that owning a house for more than five years is cheaper than renting in most markets. It all depends on what the resident is ready for — do they want the freedom to relocate with rent or plant roots with homeownership?
Increasing Rent Prices
Current trends show that rent prices have increased by 6.8% nationally since the beginning of 2022. This increase is less than last year but shows solid evidence for continued upward momentum. High demand, a growing job market, and lower rental inventory nationwide are continuing to propel this price increase. In the coming year, renters must also brace themselves for more hikes due to rising market value and demand. According to analysts, rent is projected to grow by at least another 5% in 2023.
For landlords, hiring property management companies to handle large portfolios and screen residents will become even more of a priority as market conditions continue to shift. Since the housing market forecast continues to point to sustained demand for rentals, hiring property managers will streamline the rental fill and managing process.
Incentives are also on top of mind. Perks like a month’s free rent or a waived pet deposit are becoming more common as renters look for the best deal. Landlords who offer incentives may find that they have an edge in this economy in which the cost of living has risen.
Work-From-Home Flexibility Still Motivates Long-Distance Moves
Just like in 2022, the work-from-home and hybrid work trend will continue in the coming year. This allows homebuyers to continue to broaden their search parameters. For instance, hybrid workers are moving out of metro area neighborhoods in favor of suburban homes since longer, less frequent commutes can be tolerated.
For remote workers, state lines are no longer a barrier, and owners tired of expensive markets can turn to the suburbs or a less expensive state for relief. Instead of settling for a smaller home in a pricey market, they can move elsewhere and get more house for their dollar.
Millennials May Still Bide Their Time
The ongoing seller’s market will put Millennial homebuyers at an overall financial disadvantage in 2023. Wages have not increased at the same rate as the cost of living, making it more challenging to save for a down payment and closing costs. This has forced many would-be homebuyers to continue to rent and wait for better times. However, they may find some relief if landlords and sellers offer incentives. Examples include a free month’s rent or discounts on building material upgrades.
For these individuals, real estate agents must offer more solutions and options. Connecting them to resources like down payment assistance, no closing cost loans, financing that accepts smaller down payments, and savings on commissions can aid Millennial buyers in getting their foot in the door of homeownership.
More Hikes May Come
In early November 2023, the 30-year fixed mortgage rates rose by another .75 points, with more potential hikes to come if inflation still doesn’t get under control. As it stands, the world is still feeling the impact of pandemic-related demand surges. The Fed is doing its utmost to cool the hot market. Hikes in 2023 are expected to be smaller increases, but they are still going to make an impact on buyer power. It’s not sure if sustained interest rates will make prices drop or not, but lowered prices would improve housing affordability in response to future hikes.
New Home Construction Challenges
In 2022, the housing shortage has made new home construction the most reliable way to ensure a buyer can get a new home. This triggered an increase in new home builds, especially since interest rates were low. This has been an important option for buyers who needed more inventory in spite of the real estate industry experiencing a housing shortage.
However, in 2023, obstacles such as labor shortages and a 14% decrease in mortgage applications will challenge home builders and cause a slowdown in construction activity. But since the existing home inventory is still below the 6-month level, new construction homes are among the buyer’s best chances to get a home exactly when and where they need it to be.
Just like landlords, builders can offer incentives like discounts or free upgrades to boost buyer confidence. These incentives will be more common as buyers feel the instinct to step back from a deal, making partnering with a brokerage that can save deals paramount to the business.
Buying A Home in 2023’s Real Estate Market
If you plan to buy a home in 2023, know that you still have many options. Every market has its challenges, and Marketplace Homes has navigated both buyer’s and seller’s markets. Being prepared is essential. Research and ensure that you’re ready to find the ideal listing. Our real estate agents can help you find the ideal property and make the best offer. Also, we offer unique programs that eliminate contingencies to help you make the most of your buying potential.
Please feel free to browse our available homes across the nation and give us a call when you’re ready to take the next step forward.