Rising home prices have been a hurdle for everyone, and now interest rates have risen to make the situation complicated in a different way.
Many would-be homebuyers are asking themselves: should I prepare for the 2023 spring market? Or expect to wait this one out?
There's no right answer, but understanding what the market will look like next year might help you make a better-informed decision. Here’s what you should know.
Home Prices are Rising At a Slower Pace
Home prices are not rising as dramatically as they were, but they’re still inching up in some places. Overall, the market is experiencing a correction in 2023 - not a crash. Experts expect prices to roll back from their peak, but high demand for houses will keep prices from dropping too wildly. Here's what they're saying:
- Due to reduced inventory, “Home prices won’t drop in 2023,” predicts Nadia Evangelou,senior economist and director of Real Estate Research for the National Association of Realtors. “I expect pricing to be relatively flat, increasing by only 1%.”
- Goldman Sachs’G-10 home price model suggests home prices will decline by around 5% to 10% from the peak.
- Freddie Macanticipatesthe for-sale cost of a home to drop .2% in 2023.
If you continue to wait the market, prices may drop and provide a bit of relief.
But if you’re hoping for the bottom to fall out from the market, you may want to have a backup plan.
Inventory is on the Rise
One of the reasons home prices shot up so quickly was a basic lack of supply. Low supply + high demand = higher prices. Over the last several months, though, inventory has slowly but steadily risen on the market, and this trend is likely to continue for a few reasons.
- iBuyers are letting go of the inventory they bought up when home prices were rising rapidly.
- Investors took advantage of low interest rates and snapped up thousands of homes over the past year - their purchasing has cooled off as interest rates have risen.
- Home sellers were holding onto their homes when prices surged because they didn’t want to sell, then struggle to buy in the ultra-competitive market.
- During COVID-19, space was extra desirable, and being able to go out didn’t matter at all. Post-vaccine, areas that were incredibly hot during 2020 - like Boise, Idaho - are now feeling the pinch. Cafes, offices, and co-working spaces have alleviated some of the need to have multiple office spaces at home.
“We already see a shift to an increase in inventory. Some people who held off selling during the pandemic are now ready to make a move. However, there are way fewer buyers in the market. Many got 'priced out' and many held off, hoping the rates will come down," explains Jack Mager, an experienced Houwzer buyer agent. "While analysts absolutely do see lower rates in the future, there is just no credible prediction that they will get below pre-pandemic levels ever again. The financial markets and the FED see 'cheap money' (low interest rates) as a main contributor to inflation.”
Will it be a buyer's market in 2023?
The benefit for buyers in 2023 is two-fold: one, more inventory helps tamp down price increases.Two, more inventory means more buying power. Sellers can no longer rely on having 20 bids for their house - they need to give buyers concessions, rather than the other way around.
What potential home buyers will need to watch in 2023 is national housing inventory. About 5-6 months of housing inventory is considered a balanced market, and past 6 months' will make it a buyer's market. Currently, inventory sits at about 3.3 months' supply(up from a low of 2.4 in October 2021).
Interest Rates AreHere to Stay
Paying $5 for a slice of pizza is hard to swallow after getting pizza for free, but when it comes to mortgage rates, the "free pizza" days are over. Mortgage rates hit what might be once-in-a-generation lows during the pandemic, but inflation-busting efforts have pushed them back up into the mid-6s.
For now, mortgage experts are forecasting a wide range of potential scores for next year.
- The Mortgage Bankers Association (MBA) is predicting an average of 5.4% by the end of 2023
- Fannie Mae is predicting an average of around 6.4% throughout the year
- The Economic Forecast Agency (EFA) is predicting up to 11% by the end of 2023
It’s worth noting that many experts predicted a high of 4% for this year, which turned out to be far too low.
While these estimates vary widely, one reality holds steady: so far, no one is expecting rates to drop dramatically. So if you’re waiting for rates to fall back to 3% again, you might find yourself waiting a long time.
“Waiting is a gamble. Right now, analysts foresee interest rates moving a little closer to pre-pandemic levels within the next 8-16 months. However, we are in a very volatile economical situation," explains Mager. "Nobody is able to accurately predict where the financial markets are headed in the near future. Just earlier this month, rates dropped half a percent, basically overnight, only to rise again, after the FED announced another 75 basis point raise.”
It isn’t all doom and gloom when it comes to rates, however.
For one thing, mortgage rates aren’t set in stone. If they do significantly drop in the future, you can usually opt to refinance. Though this will come with an origination fee, it can ultimately save you many thousands of dollars over the lifetime of your mortgage.
There are also alternative ways to set up your mortgage, many of which are gaining ground now that buyers have more negotiating power than they did last year.
- 2-1 buydowns can be requested from the seller - this will buy your rate down for two years (2% the first year, 1% the second year).
- ARM mortgages - adjustable rate mortgages today come with a fixed rate period in the beginning, and the rate borrowers receive will be lower than the fixed rate mortgage. A 7/1 ARM, for example, has a fixed rate for the first seven years. This can be a good option for people who don’t anticipate living in the home for the full 30 years (or who aren’t worried about future fluctuations).
- Mortgage points - rather than putting all your available money into your down payment, consider buying down your rate with mortgage points. A mortgage point usually costs 1% of your loan, and lowers your rate by .25% per point.
The right solution for you depends on your unique circumstances - including your personal finances and how long you plan to live in the home. Start a conversation with a mortgage advisor to find out your options and get the ball rolling.
Rental Rates are Expected to Rise
The trouble with waiting to buy a home is thatwaiting isn’t free. You’re still paying off your landlord’s mortgage - and in all likelihood, you’ll be paying more in 2023 than you did in 2022.Average rental rates are expected to rise this year.
- The Federal Reserve Bank of Dallas’ forecast (using data from the federal government’s consumer price index) predicts year-over-year rental price growth will rise from 5.8%, as of June 2022, to 8.4% as of May 2023.
- CoStar group anticipates rental rates rising by 4.9% in 2023.
If you’re still renting while you wait to buy a home, keep in mind that even if you buy a home that’s more expensive than you hoped for, you at least get the chance to build up your own equity.
“My main argument for buying a home now, especially if you buy for the first time: as long as you rent, every payment you make goes into your landlord’s pocket. You will never see a penny of that money ever again," notes Mager. "If you own a home, each and every payment you make basically goes into your pocket. You create equity, that you can dip into down the road, if needed. Or, once you sell the home, you can use that equity for upscaling, or at retirement, add a massive chunk of money to your nest egg for the golden years.”
Your Longterm Plan May Impact Whether it Makes Sense to Buy
Buying a home is usually a good investment - if you plan to stay there a few years. This allows you to both build up equity and make back the money you spent on closing costs like the appraisal, the inspection, mortgage origination fees, etc.
If you feel reasonably confident that you’ll live in your home for at least four to five years, then buying right now may make sense for you - especially because you’ll be locking in your mortgage payments, which will help protect you from inflation and the rising costs of the rental market.
“Real Estate has always been cyclical," observes Mager. "And while people are spooked by the high rates at the moment, they should keep in mind that a home that is well maintained and updated over time, will always, no exception, be worth more in the future.”
If you don’t have a five year plan, however, buying might not make sense. If you decide to move two years from now, for example, you could opt to rent out your home instead of selling (make sure to double check with your HOA that this is allowed, if you have one) - but your overall liquidity will be reduced, and being a landlord isn't for everyone. In this situation, it might be best to hold off on buying a home.
So: Will Spring 2023 be a Good Year to Buy a House?
An estimated 7 million homes will be up for sale in the U.S. in 2023. While it might not be the ideal time to buy, there are costs and benefits associated with both buying and waiting.
Carefully weigh the risks of all options, and be practical about what is sustainable financially.
2023 may not be the best year to buy a house, but that doesn't mean it's a bad choice to buy a house - it may still make better financial sense to get out of the rental market, or a house that doesn't fit your current needs, than wait.
Want to talk through your options with a qualified agent?
Get in touch
For Further Reading
- What's an Appraisal Gap - and What Can You Do About It?
- How to Find Deals in Real Estate: Revisiting Ugly Homes
- How Do People Afford Houses?
FAQs
Should I Buy a Home in 2023 or Wait? Read This First? ›
Despite what some may think, 2023 is still a good year to invest in real estate, thanks to advantages like long-term appreciation, steady rental income, and the opportunity to hedge against inflation. Mortgage rates are expected to decline, but the housing market is likely to remain competitive due to low supply.
Is 2023 a good time to invest in real estate? ›Despite what some may think, 2023 is still a good year to invest in real estate, thanks to advantages like long-term appreciation, steady rental income, and the opportunity to hedge against inflation. Mortgage rates are expected to decline, but the housing market is likely to remain competitive due to low supply.
Will 2025 be a good year to buy a home? ›After falling in 2023 and 2024, home prices are predicted to plateau in 2025 before rising again at just above the rate of inflation. However, due to the spike in home values from 2020 through 2022 due to record-low mortgage rates, median sales prices will take at least until 2027 to regain the highs of mid-2022.
Will mortgage rates go down in 2024? ›Fannie Mae, Mortgage Bankers Association and National Association of Realtors expect mortgage rates to drop through the first quarter of 2024, by half a percentage point to about nine-tenths of a percentage point. Figures are the predicted quarterly average rates for the 30-year fixed-rate mortgage.
Should I buy a house before the end of the year? ›Tax savings
If you close by December 31, you can deduct mortgage interest, property taxes, points on your loan and interest costs. These deductions are significant, especially in the early years of your loan when you're paying off a lot of interest.
- Inflation and Interest Rates.
- Geopolitical Risk.
- Hybrid Work.
- Supply Chain Disruption.
- Energy.
- Labor Shortage Strain.
- The Great Housing Imbalance.
- Regulatory Uncertainty.
Is House Flipping Profitable in 2023? Yes! If you get the basics right, flipping homes in California is easier in 2023 than flipping homes in 2021's competitive market. You Make Money When You Buy Your Flip: Stick to the home flipper's 70% rule.
Is housing becoming unaffordable? ›The cost of buying a home is drifting further out of financial reach for the average American, according to a report from Redfin. The real estate website analyzed homes that went on sale last year and found that only 21% of them were affordable, meaning that nearly 80% of homes were outside the typical buyer's budget.
Will home prices drop in 2023 recession? ›Fannie Mae expects home prices to decline in 2023 and 2024. However, this correction is “considered mild” because national home prices are still projected to be up 29% by the end of 2024 compared to March 2020 levels, Norada noted.
What will mortgage rates be in fall 2023? ›The Mortgage Bankers Association predicts rates will fall to 5.5 percent by the end of 2023 as the economy weakens. The group revised its forecast upward a bit — it previously expected rates to fall to 5.3 percent.
How high will mortgage rates go in 2023? ›
Mortgage Bankers Association (MBA).
“Long-term rates have already peaked. We expect that 30-year mortgage rates will end 2023 at 5.2%.”
Late August traditionally gives you a great opportunity to find deals, because sellers slash prices even further. Don't blow off the houses that have languished on the market during the spring and summer selling seasons. There are numerous reasons why a home might not have sold. It may be that a buyer backed out.
Is it better to buy a house before a recession or after? ›In general, buying a home during a recession will get you a better deal. The number of foreclosures or owners who have to sell to stay afloat increases, typically leading to more homes available on the market and lower home prices.
Is it better to buy a house before or after retirement? ›If you buy the property before retiring, it gives you time to get used to the true amounts of your monthly home expenses. Buying before can also help ensure that you have enough saved to retire and live comfortably. You'll also be in a better position to make necessary adjustments.
Will recession impact real estate? ›Will house prices go down in a recession? While the cost of financing a home typically increases when interest rates are on the rise, home prices themselves may actually decline. “Usually, during a recession or periods of higher interest rates, demand slows and values of homes come down,” says Miller.
What is the highest home price increase in the US? ›House price data reached an all-time high of 18.5% in Sep 2021 and a record low of -11.9% in Mar 2009.
What is the best investment strategy for real estate in 2023? ›Investing in real estate investment trusts (REITs) will be one of the most successful ways to put money into real estate in 2023. Investing in REITs is a common strategy for novice investors who wish to enter the real estate market.
What is the 70% rule in house flipping? ›Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home. The ARV of a property is the amount a home could sell for after flippers renovate it.
Are house flippers rich? ›As of late 2021, the average profit per flip across the nation was $68,847. If an average house flipper completes only one deal per year, then it's comparable to around a $69,000 per year annual salary. That said, most real estate house flippers turn multiple houses per year once they understand the profit potential.
Why is housing so expensive in the US right now? ›There simply aren't enough houses on the market to meet the demand that's out there right now. According to the National Association of Realtors, the supply for homes in the US that are for sale reached a record low in 2022.
What does unaffordable housing lead to? ›
The lack of affordable housing increases economic insecurity among California families and also creates challenges for California employers striving to retain and recruit workers.
Why are home so unaffordable? ›Housing in California is expensive due to high demand and low supply. With strong demand from millennials and retirees drawn to California's warm climate, the limited supply of housing has driven up property values.
Would prices go down in 2023? ›The "slowing economy is likely to bring the yearly inflation rate down to around 4.0 percent by the end of 2023," Kiplinger predicted.
Is a recession coming in 2023? ›Geopolitical tensions, energy market imbalances, persistently high inflation and rising interest rates have many investors and economists concerned that a U.S. recession is inevitable in 2023. The risk of recession has been rising as the Federal Reserve has raised interest rates in its ongoing battle against inflation.
What will a 30-year mortgage be in 2023? ›As of May 25, 2023, the 30-year fixed mortgage rate is 7.36%, the FHA 30-year fixed rate is 7.39%, the VA 30-year fixed rate is 7.23% and the jumbo 30-year fixed rate is 6.27%.
What will mortgage rates be in July 2023? ›According to MBA, mortgage rates will conclude in 2023 at roughly 5.4%. According to Freddie Mac, the average rate for a 30-year fixed-rate mortgage is currently 6.94%.
What are mortgage rates for 2023 and 2024? ›Fannie Mae expects the 30-year fixed to ease to around 6.1% in the second quarter of 2023, before falling to 5.9% in the third quarter and 5.7% in Q4. And it gets even better than that. By the end of 2024, they expect the 30-year fixed to average 5.2%.
What is the mortgage rate forecast for the next 5 years? ›ING predicts rates to range from 5% in the second quarter of 2023, rising to 5.5% in the third quarter, and then falling back to 5% in the final quarter of the year. They also predict interest rates ranging between 3% and 4.25% in 2024, staying at 3% by the end of 2025.
Will 2024 be a good time to buy a house? ›With mortgage rates declining faster than expected, home prices are likely to remain mostly flat throughout 2024. This will be good news for buyers who have been waiting on the sidelines for a good time to enter the market.
What is the best age to buy a house? ›The best age to buy is when you can comfortably afford the payments, tackle any unexpected repairs, and live in the home long enough to cover the costs of buying and selling a home. Legally, you must be at least 18 in most states to buy a home.
What is the most expensive time to buy a house? ›
Specifically, the end of May and June typically see the most home sales. However, summer is often cited as the most expensive time to buy a house — with prices potentially as much as 10% higher.
What happens to my mortgage if the economy collapses? ›Recessions and housing market crashes may cause your house's value to decrease. However, your set mortgage rates won't lower, meaning your monthly payments will be higher than your home's worth. While many may dip into their savings to help pay the steep bills, others may need outside assistance.
How long do recessions last? ›Recessions over the last half a century have ranged from 18 months to just two months. Federal Reserve economists believe the next downturn may stick around for longer than usual.
How much did house prices drop in the recession 2008? ›The median price for a U.S. home sold during the fourth quarter of 2008 fell to $180,100, down from $205,700 during the last quarter of 2007. Prices fell by a record 9.5% in 2008, to $197,100, compared to $217,900 in 2007. In comparison, median home prices dipped a mere 1.6% between 2006 and 2007.
Is it smart to pay off your house before retirement? ›No brainer. Many people strive to pay off their mortgage before they retire. It's a legitimate objective, especially when you consider that 73% of seniors said their home is their most valuable asset, a 2021 survey by American Advisors Group found.
Is it wise to buy a house at age 60? ›Buying a home after 60 can make sense if you have sufficient monthly income and find an affordable home. In addition, if you're physically capable of maintaining the home or can pay for extra help, homeownership won't become burdensome.
Is it better to rent or buy at age 70? ›In theory, buying a house after retirement gets you more for your money than renting. However, homeownership also entails substantial financial risks. Issues such as fluctuations in market value, unexpected maintenance expenses, and insurance deductibles can increase costs over and above those of renting.
Are home prices going down in Utah? ›According to the latest data, as of March 2023, the median sale price for a home in Utah overall is $525,900. That's down by 5.8% from the previous year, when the median sale price was $558,200 in March 2022.
Is real estate a good investment during inflation? ›Economic factors, such as inflation, have a direct impact on the real estate market. As with other goods and services, real estate prices may rise alongside inflation. This is due to the fact that real estate is commonly considered a safe and stable investment that can be used to combat the effects of inflation.
What is the future of real estate investing? ›Focus on high-growth markets: As the real estate market continues to recover, investors will look for markets with the highest growth potential. In 2023, cities with strong job markets and growing populations will likely see increased investment, which can drive up property values and boost ROI.
Is Utah housing overvalued? ›
The Ogden-Clearfield metro area in Utah is the most “overvalued” market in the state, according to Moody's, estimating the area is overvalued by over 50%. Logan comes next, estimated to be overvalued by almost 44%. Salt Lake City is estimated to be overvalued by over 28%.
Is Utah still a sellers market? ›The Utah housing market is amid a major shift. The median sale price was up 5.6% in September 2022 Y-O-Y, but the number of homes sold dropped 26.7%. As mortgage rates are at record highs in 20 years by 7.08%. Sellers are reducing prices as homes stay on the market longer.
Does Utah have a housing crisis? ›The lack of varied housing types has hindered the progress to fill the 45,500 unit shortage, according to the Utah Foundation. In order to close the gap, more adaptable housing, such as townhomes, duplexes and mother-in-law suites, need to be a larger percentage of Utah's housing stock.
What are the worst investments during inflation? ›Holding long-term fixed-rate investments, such as long-term bonds, fixed annuities, and some types of life insurance policies, during inflation can be bad because their returns may not keep up with inflation.
What is the best time to invest in real estate? ›Typically, the best time to buy an investment property is when the market is experiencing a slowdown or a dip in prices. During a downturn, sellers are often more motivated to sell, and properties may be available at a lower price, making it an opportune time to make a purchase.
What happens to house prices during recession? ›Will house prices go down in a recession? While the cost of financing a home typically increases when interest rates are on the rise, home prices themselves may actually decline. “Usually, during a recession or periods of higher interest rates, demand slows and values of homes come down,” says Miller.
Is it risky investing in real estate? ›Real estate investment comes with its risks. For example, you may lose money on a property in the process of flipping the structure, getting your real estate investment ready to rent, or selling it. However, you can avoid money loss with research and a well-constructed strategy.
Is real estate a good retirement investment? ›Real estate can be an asset class with high returns. It also usually offers a hedge against inflation. Since real estate has historically been inversely correlated with conventional assets, it can be a good way to diversify your investments away from the stock market.
Is real estate really the best investment? ›On its own, real estate offers cash flow, tax breaks, equity building, competitive risk-adjusted returns, and a hedge against inflation. Real estate can also enhance a portfolio by lowering volatility through diversification, whether you invest in physical properties or REITs. Internal Revenue Service.