During inflationary periods, prices rise and wages can’t keep up. The Federal Reserve typically raises interest rates, increasing the cost of borrowing to curb demand and dampen inflation. But when interest rates are higher, buyers are reluctant to take out a mortgage and pay more for their loan. The Federal Reserve did raise interest rates in 2022, but interest rates are still at historical lows.
Some good news for homebuyers in 2023
Fewer buyers, lower pricesWith higher interest rates dampening demand, there will be fewer buyers in the market to drive up prices. Lower demand typically equals lower prices. U.S. home prices dropped for the third straight month in a row in November and are predicted to decrease 8%-10% by August 2023. Some research and investment firms are predicting housing prices could fall as much as 20%.
More homes to choose fromLow inventory contributed to the past few years’ hot market. Predictions for 2023 vary, with some saying inventory will be flat, and others predicting that higher interest rates will lead to an inventory build-up before the Federal Reserve lowers rates. Inventory can also depend on what’s happening in local markets, so you might want to talk to an experienced agent with local insight.
A more balanced, stable marketHigher inventory and home prices that aren’t shooting through the roof make it likely you’ll find a more balanced market in 2023.
Fewer bidding warsBidding wars have cooled, too. Even if a house receives multiple offers, it’s not quite the frenzy it was two years ago.
Less competition from cash offersBuyers who could make cash offers also presented challenges to buyers without deep pockets. Sellers often favored a cash offer because it could close quickly and there was no worry about the home appraising for a mortgage. But currently, those cash offers are on the decline.
Reduced contingency riskIf you’re a first-time homebuyer, waiving contingencies might have understandably made you nervous. Agreeing to forego a home inspection, or the home appraisal contingency, can be scary, but many buyers were waiving contingencies to win a house against multiple offers. The good news is that contingencies are coming back.
In short? All signs point to a more normal buying experience and a market that’s shifting the power balance to buyers.
Buying a house in 2023?Interest rates can’t stay high forever. The government knows that raising interest rates is affecting and hurting the housing market, but helping curb inflation so we don’t go into a major recession. But they can’t keep interest rates this high for that long as many people are missing out on the dream of home ownership.”
Multiple experts and analysts think that the Federal Reserve will lower rates sometime later in 2023, possibly in time for the mid-summer housing market.
The best advice for buyers right now is to be patient.
We can help you identify the opportunities, properties, and programs that fit your needs.
While it’s highly unlikely the housing market will crash, it will be friendlier to buyers. And that’s news that you can, hopefully, turn into the set of keys to a new home.