The soaring interest rates that will be in effect through the majority of 2022 have put much-needed tension on the home market after the prices of homes hit record levels across the country. Since December, the rates for mortgages have been steadily on the decrease in the beginning month of the year. However, most economists are still determining whether prices for homes will continue to decline throughout 2023 or even decrease.
First, the country’s overall housing stock is still restricted since the homeowners who bought homes in recent times with meager mortgage rates are staying. Additionally, the number of new homes built in December added to the issue of stock shortages that have been brewing for years. A tight inventory has prevented prices from soaring, which makes houses expensive for many, particularly first-time buyers.
Even though home prices are still at a high level year-over-year (YOY), they’re still not as dazzling as they were at the beginning of 2022. However, how much the price of homes will fall in 2023 is likely to depend on the mortgage rate.
Housing Market Forecast for February 2023
As we move into 2023, experts in housing keep an eye on the economic outlook driven in every direction due to high inflation, high-interest rates, constant geopolitical uncertainty, and worries about recession, to mention some.
However, there are signs that a market correction is in progress. For instance, mortgage rates are beginning to show signs of easing and are just a fraction of what they were one year before.
After a few years of an explosive rise in home prices, they are slowing down to Earth, although slowly, which makes it hard for homebuyers to find affordable homes.
The median sales price for existing homes was increased by 2.3 percent to $366,900 in December, compared to the same month last year, as per the National Association of Realtors (NAR). Although this is the 130th month of price increases for YOY–a record run–the increase is less pronounced when compared to November. The prices of existing homes for sale month-over-month declined and are about 11 percentage points less than their record-setting peak of $413,800 in June.
In the meantime, even though increasing housing costs have prevented buyers from buying. However, some potential buyers are regaining their footing due to the recent decrease in interest rates. Mortgage applications rose by 7 percent over the previous week, as per the Mortgage Bankers Association.
In the same period, home sales for existing homes dropped 1.5 percent from November to December, which marks the 11th consecutive month of falling sales, down 34% from one year ago, according to NAR.
Despite all the conflicting messages, confident analysts believe homeowners have reasons to think they can make a difference in 2023.
“Markets in about half the nation are expected to give potential buyers discounts as compared to the previous year,” said Lawrence Yun, chief economist at NAR.
Other experts anticipate increased sales as home buyers return this year, eventually leading to a full-on market revival.
“It seems that we’ve at the end of the slow home sales,” says Nadia Evangelou an economist who is also the director of forecasting at the NAR. “And as mortgage rates stabilize at or near 6percent, we are expecting this market will pick up by the year 2023 … as well as to rebound by 2024.”
Housing Inventory Outlook for February 2023
The lack of housing inventory has been a significant issue since the 2008 crash when the number of construction homes slowed. The housing market isn’t fully recovering and will not until 2023.
The housing market’s stagnation at historic lows has helped boost demand compared to other downturns and is experiencing higher prices for homes.
“December’s actual home sales report landed on the low end of the trifecta: lower sales, lower inventory, and higher prices” states Robert Frick, a corporate economist at Navy Federal Credit Union.
With the current sales pace, the inventory stands at a 2.9-month supply, as per NAR. The figure is down from 3.3 months at the end of November; however, it was up by 1.7 years in 2021.
Based on this data and others, industry experts are predicting an unfavorable outlook for when inventory levels will begin to normalize.
“I think we’re likely to see a decrease in inventory to make the housing market more difficult until 2023,” states Rick Sharga, executive vice director of market intelligence of ATTOM Data. In addition, with most homeowners with a mortgage rate less than 4, Sharga says we’re likely to see an influx of homes sometime soon.
However, there are mixed signals in the world of homebuilding single-family construction beginnings increasing by 11.3 percent in December, and the number of applications for building permits fell by 6.5 percent from the previous month, according to preliminary figures provided by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.
“More importantly, in December 2022, home starts by single-family homeowners were less than in December 2021, with 909,000 homes being built this year, as compared with 1.338 million in December 2021,” says Sharga.
Yet, the latest survey of builder sentiment showed an optimistic outlook, with builders’ confidence rising in the first instance in 12 months of decline. However, it increased by just 1% from 31 to 35, according to the most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) report. The confidence of builders is still at a low level (50 or more means that more builders are optimistic about the future ahead) which means there’s going to need to be more upticks in a row before we see a substantial rise in new construction.
“The final word is that there’s not an unlikely scenario that could lead to inventory levels reaching levels that are historically normal in 2023. This means potential buyers will need to search hard for something they want to purchase,” says Sharga.
When Will the Housing Market Crash?
In part due to the ongoing inventory issue, which has led to the rise in home prices, Numerous economists have predicted that the housing market will be more likely to stabilize in the wake of double-digit percent rises that have been seen in the home price over in the last few years, rather than crashing.
“After an enormous boom in the last two years, there’s likely to not be any change nationwide” in the home price in 2023, as stated by Yun.
Some experts think that some regions may see price and sales increase, especially in areas where home prices have remained reasonable in recent years compared to the median income.
“We’re anticipating 5 percent drop across the country,” says Sharga. “Some markets, whether you believe you or not could have prices that continue to rise.”
Others say that homeowners today are on a more solid footing than those impacted by the 2008 crisis, with a large percentage of borrowers with equity in their homes. Thus, the chance of a crash in the housing market is meager.
“Homeowner equity has reached its highest it’s been in few decades, which means that homeowners are able to see a lot of value to their homes,” says Nicole Bachaud, an economic analyst at Zillow.
Bachaud adds that mortgage products are less risky.
“There are many restrictions and regulations within the mortgage market which make it stronger and less volatile and risky than before the 2008 financial crisis,” she says.
In the event of a crash in the housing market generally, you’d experience a 20% to 30% decrease in the cost of a home and a decline in home sales, far more than what’s happening. Another sign of a market crash that has been absent is a rise in foreclosures.
“I believe we’re most likely to watch the markets slow instead of crash,” Sharga says.
Will There Be a Lot of Foreclosures in 2023?
Despite the constant increase in foreclosures from the expiration of the Covid-19 moratorium on foreclosures, which took effect in September 2021; however, foreclosure rates remain lower than pre-pandemic levels. In 2022 the foreclosure rate was down 34% compared to the year prior in The Year-End 2022 U.S. Foreclosure Market Report released in the year-end report of ATTOM Data.
In December 2022, foreclosures started up 72 percent from the previous year. However, they were down by about 1 percent between November and the end of December.
“It is evident that the efforts by the mortgage industry and government during the pandemic, along with a healthy economy, has helped to avoid thousands of foreclosures that are unnecessary,” said Sharga in the report.
The main difference between the present and before the 2008 crisis in housing is that a lot of homeowners, as well as those who are struggling to pay their mortgages, are seeing a significant rise in the value of their homes during the past few years. This means that they can make a profit on their houses and aren’t in a position of being underwater. This is when you owe more than the value of your house.
Sharga said that people in foreclosure are taking advantage of the equity they have built up in their houses by refinancing their homes or selling them for profit. “It appears likely that this will be the trend that will last through the year 2023,” Sharga said.
When Should I Buy a Home in 2023?
The purchase of a home–in any market is a personal choice. Since houses are the most prominent single purchase people make in their lifetimes, you need to have an excellent financial position before committing.
Utilize a mortgage calculator to determine your monthly costs for housing depending on the amount of your down payment and the interest rate.
There are better ways to purchase a house than predicting what will occur next year. “Buyers that are sitting around today, hoping for price reductions tomorrow, could find themselves dissatisfied,” says Neda Navab, President of the U.S. region at Compass, a tech-based real estate firm.
Navab believes home prices in the hottest market over the last few years to fall a bit, but she doesn’t expect an all-encompassing, nationwide price drop like the one seen following the 2008 financial crisis.
Instead of waiting for lower prices, experts recommend buying a home based on your budget and your needs. If you can find a house in an area you like, and within the budget you have set, the chances are that it is the right choice for you. But, if you are willing to make a lot of sacrifices to buy a house, and then you get buyer’s remorse, that could cause you to let go of the house.
Tips for Buying in Today’s Housing Market
Begin with a budget and adhere to it. Even with a slight increase in the number of homes sold, buyers still face higher costs and mortgage rates as high as 7 percent.
“The major issue right now is the rift between sellers and buyers,” Rita says. Rita.
Tayenaka, the owner of Orange County the, located in California, operates the Coast to Canyon broker Coast to Canyon. “Buyers would like to bargain, and sellers are looking for the last year’s prices.”
While buyers are enjoying some flexibility now, they must keep on their toes that this is a buyer’s market when they think about their choices.
Tips for Selling in Today’s Housing Market
The first step to an effective sale is locating a listing agent who is highly recommended and familiar with the area. An experienced agent will be in close contact with you to determine the best price for your home while taking offers and questions from potential buyers.
Tayenaka speaks of the vast number of homes that fell out of escrow in recent times as a cautionary tale to sellers who insist on 2021-based prices. “Everyone believes that their home is unique,” she says.
While the market may be tilted to your advantage, It’s the best option to present your house in the best light possible. Not every homeowner’s budget can be devoted to home repairs or renovations. However, a little effort can make a difference. First, you must clear the clutter and tidy it. Even if your house is old-fashioned, a tidy area gives potential buyers a chance to imagine the potential of your home.
