Housing Market Predictions for 2023: 4 things you need to know
We are rounding the corner of 2022 and heading toward a new year. This makes it the best opportunity to anticipate real estate challenges and opportunities for 2023. Many homeowners, potential sellers, and potential buyers are apprehensive about next year.
Will the housing market witness a decline in 2023? There are differing views regarding the outlook for 2023. Most residential industry analysts anticipate decreased buyer demand, decreased prices, and higher borrowing rates. A combination of inflationary pressures and a lack of supply has caused many buyers to reconsider. Although there may be a minor drop in home values, it won’t be as severe as in 2008. Some expect the housing market to continue to perform better than before the pandemic.
Unprecedented competition and exorbitant pricing may be present in the housing market, but such situations can only last a short while. There are objective indicators that we are currently witnessing a housing bubble. When that bubble pops, the market may undergo significant adjustments, both positive and negative.
Whether you’re thinking of buying or selling a home, it’s important to consider these longer-term changes and how they might affect your plans.
1. A Slowdown in Housing Is Inevitable
The present rate of growth in the housing market is unsustainable. Whenever there are indications that the market is slowing, investors start to be concerned about liquidity. As an outcome, they might limit mortgages since they would rather retain their money on hand than take the chance of a mortgage default. If lenders do so, they might enact stricter guidelines to reduce the risk they take on with each mortgage they grant.
That’s what occurred in 2008, and those problems may begin again. Liquidity concerns and stricter guidelines may make it difficult for purchasers to obtain mortgage approval, which would cause prices to drop even further.
2. Rising Mortgage Rates May Force Some Buyers Out of the Market
Even while housing costs may be rising quickly, income levels are not. In fact, according to data from the U.S. Census Bureau, the median household income in 2020 was $67,521. When compared to the $29,560 median salary for 2019, that income had dropped by 2.9%. That decline was probably influenced by a number of variables, including the pandemic-related increase in unemployment.
In contrast, the median sale price of a home in the United States was $440,300 in the second quarter of 2022, according to economic data from the Federal Reserve. Additionally, buyers who are willing to waive conditions like property inspections and hyper-competitive bidding are driving other purchasers out of the market.
3. Mortgage Rates Will Continue to Creep Higher
Mortgage rates are still reviving from their 2020 lows. Rates experienced a spike in 2022, climbing to 5.81% by June 2022. Mortgage rate increases may have a variety of effects. They lessen the appeal of buying a home for buyers who made the move due to the temptation of a low mortgage rate. Additionally, they raise the cost of purchasing a property, reducing the range of prices that are affordable for many buyers. Home prices will decrease as fewer buyers are able to purchase properties.
4. The Mortgage Industry Will Remain Tight
The mortgage market will remain tight in 2023 even though rates will rise and home prices will decline. Therefore, it will be more difficult for homeowners to obtain mortgage financing. Homebuyers will still have options, but they may need to be more persistent and put in some effort to get ready to apply for mortgage financing. A crucial part of that preparation is building credit, and it takes time.
We will likely see an increased focus on the different types of mortgages available and their varying qualification requirements. It might be particularly challenging to qualify for a conventional mortgage, especially if you’re self-employed, refinancing, purchasing a second property, or investing. Home finance businesses may want greater down payments in addition to raising their credit score criteria to ensure that the buyer can make payments. They may also look for a higher debt-to-income ratio.
The real estate market and the home-buying process have changed as a result of the housing bubble. Housing demand has been fueled by factors like the pandemic, and fierce rivalry among prospective home buyers has been sparked by low mortgage interest rates. However, when interest rates rise gradually, property values are beginning to fall and there are fewer bidding wars for available properties.
Reach out to us for the best advice if you plan to buy a home soon.