Should I Buy a House in 2023?
December 11, 2022
Home prices have risen at an insane rate because of high demand and a limited housing inventory. This has created a crisis as buyers struggle to afford houses and mortgage rates rise at record levels. As such, many housing market analysts are predicting that 2023 will be a year of correction. They expect the mortgage rates to climb higher while home prices start to decrease. In this blog post, we cover the 2023 housing market predictions and if you should buy or rent a house in the coming year.
Overview of the Housing Market Since 2020
The housing market has drastically changed over recent years. In 2020, the housing market saw an overwhelming demand for houses and a surprising lack of supply, which created a nationwide seller’s market. The pandemic caused many builders to stop construction, and the low-interest rates made homes more affordable. 2020 became a year where houses were bought quickly and for increasingly higher prices which leads us to 2021.
In 2021, home prices continued to rise significantly while mortgage rates remained low. Homes were selling at a record pace, often above the asking price, and low housing inventory put even more pressure on the market. Nevertheless, inflation was also escalating and the Federal Reserve was prepared to take action.
In 2022, inflation reached unprecedented levels along with home prices. The Federal Reserve raised the interest rate six times to combat inflation. At the beginning of 2022, the federal interest rate was a mere 0.25%-0.50% but since then has increased to 3.75%-4%. These federal increases have affected mortgage interest rates causing them to double in that period as well. The higher mortgage rates have slowed down the housing market significantly and the low housing supply only makes the situation worse for buyers. Now that we’ve looked at the current state of the housing market, let’s take a look at some predictions for 2023.
Read More: Should I Buy a House Now or in 2023
Housing Market Predictions For 2023
The Fed is expected to continue to combat inflation by raising the interest rate in 2023 which means that mortgage rates could climb even higher. With home prices already high, the housing market will likely slow more than it already has and could even start to correct. Here are some of the predictions for the housing market in 2023.
1. Lower Home Sales Because of Higher Interest Rates
Home sales have decreased for over nine months in 2022, going down another 5.9% in October. Buyers are more hesitant to enter the housing market because of the raised mortgage interest rates. This trend is expected to continue in 2023. Redfin analysts predict a 16% decrease in home sales in 2023 compared to 2022 numbers, staying around 4.5 million sales next year.
2. Mortgage Rates Will Decrease
Throughout the year 2022, 30-year fixed mortgage rates saw a substantial surge from 3.22% in January to an astonishing 7.08% high in November. Nevertheless, starting with November we began seeing downward momentum as interest levels decreased to 6.33% by December 8th. Experts expect the interest rate decline to continue in 2023. Depending on how inflation and market forces play out, mortgage rates should drop to a little under 6% by the end of 2023.
3. Home Prices May Drop
Real estate experts are divided on whether home prices will drop in 2023. Some say that with the raised mortgage rates and decreased demand, the annual median home sale price in the US should decrease by 4%. This would be the first decrease in annual median home prices since 2012. However, the prices will be nowhere near pre-pandemic levels.
On the other hand, there are experts who believe prices won’t drop at all in 2023. Housing inventory remains low and even though the COVID restrictions have been lifted, builders have not been able to get back to the pre-pandemic output. Builders are also struggling to sell homes because of the slowed market.
“Right now, builders aren’t focused on any homes as best as I can tell we’ve slowed down completely.” – Jerry Howard, president and CEO of the National Association of Home Builders
4. Rent May Rise
Rent prices have skyrocketed on a national level in 2022 and the upward trend shows no signs of going away in 2023. Analysts expect rent to continue increasing in 2023 by a moderate amount. Moody Analytics predicts a rent price growth of at least 5% in the new year. Meanwhile, the Federal Reserve Bank of Dallas predicts a rental inflation increase from 5.4% to 8.4% by May 2023.
Should You Buy a House in 2023?
From expert predictions, it’s clear that 2023 will be an improvement for those looking to buy a home compared to 2022. Mortgage rates are expected to decrease a small amount and home prices may also drop as well. However, the beginning of 2023 is still expected to remain slow. If you plan to buy a house, 2023 may be a great time to do it.