Home buyers have been mistreated in the 2020s. 2023 could be a turning point for home buyers, with the housing market giving them a better chance. These are the real estate trends you should be watching in the next year.
Reasons to be optimistic
Home buyers have a brighter future than ever since the start of the pandemic.
In her housing forecast, Danielle Hale, chief economist at Realtor.com wrote that buyers will have some things to look forward too in 2023. “There will be more homes to sell and homes will take longer to sell than in the past. Buyers will not have to deal with the same extreme competition as they did in the past. ”
Senior economist at Zillow Matthew Speakman noted that there has been less competition and buyers are gaining more negotiating power. He said via email that buyers no longer have to settle on the first house they win. Inspection and financing contingencies are also back on the table.
Bright MLS’ chief economist Lisa Sturtevant warns that buyers may have more negotiating power in 2019 than in 2021. However, it is still a seller’s market. She advises buyers to get mortgage preapprovals prior to making an offer.
Because builders may offer discounts or lower prices, buyers might find it worthwhile to look for deals on newly built homes. This is why: In 2022, builders faced increasing cancellations as mortgage rates increased dramatically during construction. Although rates were low when buyers signed purchase agreements, rates have risen to the point that they are no longer affordable by the time homes are completed.
Mortgage rates may flatten or even drop
To curb inflation, the Federal Reserve raised the federal funds rate by 4.25 percentage points this year. The mortgage rates increased by a smaller amount: Mortgage rates rose less than expected. In the first week of January, the 30-year mortgage averaged 3.211%. It peaked at 7% in November and October, and dropped to 6.34% the second week.
Many potential buyers were forced to stay away from the market by high mortgage rates. This led to a drop in home sales as fewer people could afford to purchase. Forecasters predict that lower rates could help homeowners rekindle their home-buying dreams by 2023.
Fannie Mae and Freddie Mac, along with the National Association of Realtors, forecast a steady decline in mortgage rates by 2023. The 30-year mortgage will average between 6.1% to 6.5% in the fourth-quarter.
The Mortgage Bankers Association predicts a sharper decline with 30-year mortgages dropping to 5.2% on average in the fourth quarter 2023.
These predictions should be viewed with suspicion. These forecasters were wrong a year ago when they predicted that 30-year mortgage rates would range from 5% to 5.3% in 2022’s fourth quarter. They couldn’t have predicted how aggressively Fed would raise interest rates, and the accompanying rise of mortgage rates.
There is no clear trend in prices.
The home prices are not like mortgage rates. They vary from one place to another and season to season. It is difficult to predict them. We’ll focus on national forecasts, which predict what will happen in home prices between 2022 and 2023. These forecasts can be confusing.
Realtor.com predicts that median home prices will rise by 5.4%. According to the National Association of Realtors, a price rise of 2.5 %.
Bright MLS’ Sturtevant predicts that prices will rise by 0.3%. As interest rates stabilize, Sturtevant believes we will see a rise in demand from those who have been waiting and watching. They would be competing for homes, putting a floor on prices.
John Burns Real Estate Consulting, on the other hand, predicts that home prices in the future will drop 20% to 22% from spring 2022’s peak. Zonda, an international real estate consulting firm, expects a 15% decline from the peak. These companies do not expect all of the declines in 2023. Prices may drop through 2024.
Rick Palacios Jr. is the director of research at John Burns. He stated in a podcast interview, that the median home price rose by 40% between spring 2020 and spring 2022. According to Palacios Jr., it wouldn’t surprise for prices to drop 20% after such a rapid rise.
Palacios stated that “we squeezed a decade of appreciation in home prices into two years” on the Altos Research podcast.
The ‘Rate lock in’ will reduce inventory
Sturtevant estimates that 75% of mortgages are currently at a rate below 4%. These homeowners would need to be “enticed” to sell their homes and exchange their low-rate mortgages with home loans at 6% or more. This phenomenon is known as “rate lock-in” in real estate terminology and has at least two noteworthy effects.
Zillow’s Speakman stated that it causes “a marked decrease in existing houses entering market as for-sale inventories.” People who keep their homes off of the market reduce the number of homes available for sale. Home prices will not fall if demand remains constant.
In the 2023 forecast by Redfin’s real estate brokerage, Taylor Marr, deputy chief economic economist, said that homeowners may be tempted to be landlords. Many homeowners will rent their homes out rather than selling because they don’t want to lose a low interest rate. He predicted that there would be an influx in single-family homes available for rent.
What makes sellers successful?
Prospective sellers will need to face rate lock-in. They may have to accept that they can trade a low-rate mortgage to get a loan with a higher interest rate. This is not the only mental hurdle that sellers who succeed will overcome.
Speakman stated that sellers in this market will need to adjust their expectations to meet buyers’ needs if they are to sell quickly. The days when sellers could sell their property at any price and in days or even hours are gone. We have seen record-breaking appreciation over the past three years, so sellers can cut their prices while still achieving major gains on their properties. ”
Sturtevant states that it is important to price a house “appropriately” — according to the current market, and not last year’s market. Buyers will base their offers on sales that have occurred in the past, which is likely to be less than the prices for spring and summer 2022.
Sellers have already been accepting contingencies to finance, appraisals and inspections, Realtor.com’s Hale stated in her forecast. They’ve also been more willing to pay closing costs as well as compromise on closing times.
Buyers demand that sellers leave their homes in good order. Hale noted that recent sellers were more likely to report making repairs prior to listing, and more likely also to pay for repairs during the contract term. “In summary, buyers have limited budgets and sellers who can help buyers find a move-in-ready house will be able to gain an advantage. ”
Jerimiah TAYLOR, vice president of mortgage and real estate services at OJO Labs recommends that buyers buy when they are ready, not waiting for the market to drop.
He says, “Ultimately, the greatest mistake I see potential homebuyers make is waiting and trying too hard to time the market.” He says that the home’s value is almost certain to increase over seven or ten years, hiding valleys and hills in price.