The housing market is nothing if not unpredictable.
Mortgage interest rates soaring, and the market was beaten. But don’t expect 2023 to be a buyer’s market, housing experts say.
Will 2023 be a good year for potential buyers? It depends on your location and income, Odeta Kushi, deputy chief economist at First American, told MarketWatch.
Others are less optimistic. “The year 2023 will become its own market. George Ratiu, director of economic research at Realtor.com, told MarketWatch.
“For sellers, the reality is that the price they had hoped to get in the past few years simply is gone,” Ratiu explains. “For buyers, prices have skyrocketed over the past two years to the point where even a 10% to 20% discount will not bring them any bargain.”
Here’s how experts see the housing market playing out in 2023.
Good news: More homes for sale
Most experts agree that inventories — the number of homes available for sale — will increase in 2023.
“We will have more inventory than we did two years ago,” Ratiu said. But homes for sale are on the market longer, he added.
Red Fin Corporation
RDFN,
Deputy chief economist Taylor Marr says the typical home has been on the market for about two months now. “There are a lot of homes out there waiting for buyers,” he said.
Builders are also bringing new homes to market and are pull out all stops to increase sales.
In some markets outside the West, buyers can expect “more inventory than before the pandemic,” said Jeff Tucker, senior economist at Zillow
Z,
told MarketWatch.
“Markets such as Phoenix and Las Vegas, which have seen a boom in sales during the pandemic, are now experiencing a glut of homes for sale.“
Tucker said markets like Phoenix and Las Vegas, which have seen sales booms during the pandemic, are now experiencing a glut of homes for sale. “There are a lot of homes on the market and that puts downward pressure on prices,” he noted.
In most major markets, there are several reasons for low inventories.
“There’s less inventory because homeowners aren’t willing to give up their super-low mortgage rates,” said Lawrence Yun, chief economist and senior vice president of research for the National Association of Realtors. with MarketWatch.
He added: “Most people have refinanced at a rate of approximately 3% in 2020 and 2021. “Sell and [then] Buying a new home means having a 6.5% mortgage rate, so even a drop in home size and price means higher monthly mortgage payments.
Some homeowners are move to the rental market instead of dealing with a harsh sales environment.
Good news: Less competition, goodbye bidding wars
Many homeowners will not fondly recall the days of the pandemic frenzy bidding intensely and over budget just to close a home deal.
With a sharp drop in housing sales, the bidding wars could become a relic of the pandemic era in 2023.
“Buying conditions… will obviously be better for buyers in 2023, especially in the first half of this year, than in the first half of 2022,” Tucker said.
““The buying conditions… will obviously be better for buyers in 2023, especially in the first half of the year, than in the first half of 2022.”“
Conditions of purchase include the number of homes to choose from, the competition for those homes, the forced increase in listing prices, “and some other ancillary aspects of that, such as a sense of haste. because every house sold out in one weekend,” said Tucker.
Under pressure, many buyers have given up contingencies such as financing, appraisals or inspections, he added. Those pressures eased as the market cooled down.
“Because the market has softened so much, all of those buying and selling conditions are going to be a lot more favorable for buyers, especially compared to the frenetic market conditions of the first half of the year,” Tucker said. last. “So that’s really good news for buyers.”
According to a Realtor.com survey from the fallMore and more sellers are saying that buyers are asking for repairs after a home inspection.
The housing market is “moving away from a hyper-competitive environment where sellers are almost decisively moving into an environment where buyers have more negotiating power” Ratiu noted.
Bad news: Mortgage rates will stay steady but won’t fall much
Mortgage rates have skyrocketed over the past year, but buyers can expect them to stabilize and even decline slightly.
Rising interest rates are the housing story of 2022, as the US Federal Reserve puts the brakes on the ultra-low interest rate environment, making mortgages more expensive.
Here’s how the rate increased over the past year, doubling and even hitting 7% by November 2022:
Data and graphics: Freddie Mac
Mortgage rates are difficult to predict. But there’s reason to believe we’ll see mortgage rates start to stabilize next year as inflation stabilizes a bit,” said Kushi, “so that should help…affordability and confidence. consumer confidence.”
Kushi says the consensus forecast is for rates to end 2023 at around 6%.
Meanwhile, the Mortgage Bankers Association expects interest rates down to 5.4% by the end of 2023.
“We have seen mortgage rates rise sharply this year, adding somewhere between $800 and $1,000 a month in monthly payments compared to a year ago,” Ratiu said.
He added that expectations of interest rates will continue to rise, which means that if incomes don’t grow by that much, “financing a home will remain expensive.”
Bad news: Home prices will fall in some markets but still expensive
Due to soaring interest rates, many potential buyers are standing on the sidelines. And that is weighing on house prices.
But don’t expect deep discounts – or housing collapse.
Mark Zandi, chief economist at Moody’s Analytics, told MarketWatch he expects home prices in the US to fall as high as 10% over the next two to three years. However, you have to keep in mind that those prices have also increased by 40% since the pandemic hit.
“I don’t think home prices in the US will fall,” Zandi added. “Of course, if the economy is in a recession, then the drop in house prices will be more severe. But even then, a crash seems to last.
Existing home sales have plummeted, which has begun to put pressure on home prices. According to NAR, The average selling price of an existing home has fallen from a peak of more than $410,000 in June to $370,700 in November.
Ratiu notes that many sellers have resorted to discounts to sell their homes. “Twenty percent of the homes listed on Realtor.com dropped in price in November,” he said. “So I expect that to be part of the market in 2023, which is good news. .”
“‘Twenty per cent of homes listed on Realtor.com dropped in price in November. So I expect that it will be part of the market in 2023, which is good news.’“
Redfin says its statistics are more or less the same across the country, but in some markets the price drops were stronger and broader, in some places affecting more than half of households.
“Buyer can not only offer on demand [price] Marr said.
So where is the slowdown happening? “The West is facing the steepest decline in house prices and prices falling from their peaks,” said Kushi. “Specifically, Zoom
ZM,
the markets with the biggest growth during the pandemic.”
The so-called Zoom marketplace includes Salt Lake City, Utah; Boise, Idaho; and other popular second-tier cities where people move to work remotely.
But while prices may not go up, they are still expensive, especially when incomes haven’t grown much, even with high inflation.
According to a October report from Dallas Federal ReserveDespite the strong job market, “the majority of workers are seeing their wages fall even further than inflation,” with an average decline of 8.6% in the quarter. two years 2022.
However, if mortgage rates drop to 6% and home prices fall as well, “even if income stays the same, that means affordability will improve compared to now,” argues Kushi. . “So there is a case to be made that affordability will improve by the end of next year.”
Bottom line: Affordability will improve — but it will still be an unbalanced market
Falling mortgage rates and home prices should make home prices slightly more affordable in 2023, but not by much. And ultimately, the market won’t favor either the buyer or the seller.
“Higher interest rates sucked all the power out of sellers,” Marr said, “but buyers don’t necessarily see it as a big win because of how rates are still expected. So it was a bit of a tug-of-war.
In 2023, Marr has a piece of advice for all the potential homebuyers out there.
“Keep an eye on changes in the market and that includes what happens to mortgage rates,” says Marr. “If they drop half a point, that could make the difference to your monthly payment more affordable.”
And don’t discount homes that have been on the market for longer than usual. There may be some rough diamonds.
Realtor.com is operated by Move Inc., a subsidiary of News Corp., and MarketWatch is a unit of Dow Jones, which is also a subsidiary of News Corp.
Have thoughts on the housing market? Contact MarketWatch housing correspondent Aarthi Swaminathan at [email protected]
