The new year is here, and we can expect some major shifts in the local housing market. With climbing mortgage rates, home sales and home prices are hitting the brakes, and there is an increasing amount of uncertainty in the market. Many homeowners, prospective buyers, and prospective sellers are all nervous about what the next year holds.
And with good reason. Keep in mind that the average 30-year fixed mortgage rate currently is around seven percent, with an alarming inflation rate of 8.2 percent. Furthermore, sales of previously owned homes experienced a drastic drop at the end of 2022, showing that existing homes are selling at their slowest rate in the last ten years.
Here's a look at some critical housing market predictions for 2023.
1. The Cost of Financing a Home Unlikely to Come Down in 2023
With the interest rates almost doubling from the lows we witnessed in early 2022, it is easy to predict that the mortgage rates are unlikely to come down in 2023. Neither are there any signs of things looking up anytime soon. With continued inflation, higher interest rates, a recession looming large on the horizon, and continued geopolitical tensions, real estate experts believe that the 15-year and 30-year mortgage rates will remain high throughout 2023. As the short-term risks continue to rise, the two mortgage rates will come closer together. It is expected that the 15-year and 30-year benchmark mortgage loans will average around 8.25 percent and 8.75 percent, respectively, across 2023.
In early 2023, the rates will peak at approximately eight percent and 7.25 percent for the 30-year and 15-year mortgage loans and then may come down during the year to remain in the vicinity of six to five percent, respectively. However, this entirely depends on the Federal Reserve's ability to bring inflation under control while also easing up on the aggressive rate increases.
2. Should we expect a drop in housing sales?
Undoubtedly, the high mortgage rates will significantly impact housing sales. Higher mortgage rates may cause home sales to dip by over ten percent in 2023. In another scenario, home sales may go down by seven to eight percent with a gradual deceleration of inflation. And if the Fed increases the rates repeatedly to rein in inflation and if the economy enters a recession, home sales are also expected to fall further by over 15 percent.
There is a consensus amongst all housing experts that the slowdown in housing sales will continue well into 2023. Listings may go at a slower pace too. The average days of a house on the market will go up, around two to three times the current levels. As the market cools, listing days could approach 30 or even more in the coming year.
3. What can we expect from Home Values?
Due to the low inventory, home prices are not likely to experience a fall in 2023. Housing prices are expected to be more or less flat, increasing (if at all) by only one percent. Though the higher interest rates will likely hurt home values and pricing, a soft real estate market with prices at lower levels than the current ones will be the reality of 2023.
This is not good news for home sellers, but a remarkable and welcoming statement for house buyers who are patiently waiting to become homeowners.
Conclusion
There is no doubt that economic issues and affordability issues will suppress the demand for home buyers. At the same time, the inventory of homes that are available for sale will continue to remain limited. This will make the market more balanced instead of leaning towards either a buyer's or a seller's market.
The pandemic has ushered in a bidding war in smaller markets and suburban areas. Now with offices and businesses going back to total capacity, there is hope that the larger markets will revert to pre-pandemic levels, and there will be an increase in demand in these areas.
The hope remains that as supply and demand normalize in the housing market, interest rates will slowly decline. Until this happens, though, people who cannot afford the costs of mortgages will have to continue waiting to buy their dream homes.
