What’s in Store for the Housing Market in 2023?
With the 30-year fixed mortgage rate at just over seven percent, home sales are continuing their downward trend. Additionally, the nation’s housing supply remains limited which keeps home sales and prices from falling, further serving to keep home purchases in a slump. In January, home construction fell again. As if all of this were not enough, people who bought homes in recent years at record low mortgage rates have no interest in moving to a new home. After all, why leave a mortgage rate of about 3% for the privilege of paying about 7% on the new home.
As we move through the spring of 2023, housing analysts are keeping a keen eye on the economy with its stubborn level of high inflation, steep interest rates, geopolitical crises, and recession fears.
Home prices today are 8.1% higher than march of last year and mortgage rates are 250 basis points higher than during that same period. In January alone, home prices rose 1.3% nationally according to the Nationally Association of Realtors (NAR). This represented the 131st consecutive month of year over year price rises – an all-time record. Between December and January total existing home sales dropped 0.7%, the 12th consecutive month of declining sales and down a whopping 36.9% from a year ago, according to NAR.
As alluded to earlier, low housing inventory has been a problem since the recession of 2007-2008 when the construction of new homes plummeted. It still hasn’t recovered yet and analysts believe this problem will remain throughout 2023. In addition to high mortgage rates this housing shortage tends to keep home prices high.
“I believe that we’re likely to see low inventory continue to vex the housing market throughout 2023,” says Rick Sharga, executive vice president of market intelligence at ATTOM Data. And with 70% of homeowners sitting on a mortgage rate of 4% or less, Sharga says we’re unlikely to see an inundation of homes soon.
Also, single-family construction starts were down 4.3% between January and February and applications for building permits declined by 1.8% according to the U.S. Census Bureau.
A bright spot is that most analysts think that the ongoing inventory problem which keeps home prices high is more likely to correct itself over time from the double-digit percentage jumps of the last few years, rather than a crash. Additionally, a higher number of borrowers having positive equity in their homes compared to the Great Recession of 2007-2008. This further reduces the chance of a housing market crash.
“Homeowner equity is at the highest level it’s been in the past several decades, so homeowners have a lot of value in their home,” says Nicole Bachaud, an economist at Zillow.
Also, foreclosures remain below pre-pandemic levels. In 2022, foreclosures were down 34% compared to 2019 according to ATTOM Data’s Foreclosure Market Report.
If the reader is thinking when is the right time to buy, trying to predict the market is usually a really bad idea. Even housing experts are very often wrong in their predictions. Instead of getting into the predictions game, a far better idea is to seek a home based on your current reality: budget and needs. Start with your budget and stick stubbornly to it.
For sellers, find a real estate agent with roots in the community and ample experience. These are the brokers who have the best view of the market in the area where you want to buy. A good agent will advise you on what your asking price should be.