The soaring interest rates that will be in effect through the majority of 2022 have put much-needed tension on the home market following house prices reaching record highs across the country. But, since December, the mortgage rates have been steadily decreasing through the first week of February. Yet most economists are still determining whether the price of homes will decline until 2023 or even fall.
First, the country’s overall housing inventory is still shaky because those who bought houses with meagre mortgage rates in recent years are staying. Additionally, the construction of new homes fell yet again during December, further aggravating the long-running inventory issue. A tight inventory has prevented prices from falling drastically, which makes homes expensive for many, particularly first-time buyers.
Even though home prices are still higher year-over-year (YOY), they’re not as dazzling as they were at the beginning of 2022. However, how much home prices fall in 2023 depends on how mortgage rates rise.
Housing Market Forecast for February 2023
As we move into 2023, experts in housing keep an eye on the economic outlook that is pulled all over the place due to high inflation, steep interest rates, continuing geopolitical uncertainty and the fear of recession, to mention some.
However, there are signs that a correction in the housing market is in progress. One of them is that mortgage rates are beginning to show signs of improvement and are lower than they were one year ago.
After a couple of years of explosive growth, the cost of homes appears to be coming back to Earth slowly, making it hard for many homeowners to get affordable homes.
The median price of existing homes sold was higher by 2.3 percent to $366.900 in December, compared to the same month last year according to 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 percent less than their record-setting highest of $413,800 in June.
In the same period, the total sales of existing homes fell 1.5 percent from November to December, which marks the 11th consecutive month of falling sales and down 34% compared to one year ago, according to NAR.
Despite the mixed message, some experts believe that home buyers have a reason to be optimistic in 2023.
“Markets in about half the country could provide buyers with discounts as compared to the previous year,” said Lawrence Yun, the chief economist of NAR.
Other experts anticipate increased sales when home buyers return this year, leading to a genuine market revival.
“It appears that we’ve already at the end of the housing market, which is still abysmal,” says Nadia Evangelou an economist who is also the director of forecasting at the NAR. “And as mortgage rates stabilize close to 6.6%, we anticipate this market will improve at the end of 2023 … then rebound by 2024.”
Housing Inventory Outlook for February 2023
The lack of housing inventory has been a problem since the 2008 crash in housing, in which the number of construction homes has slowed. It’s not fully recovered and will likely not until 2023.
The housing market’s historic stagnation has helped boost demand compared to other downturns and is experiencing higher prices for homes.
“December’s actual home sales report landed on the negative trifecta of fewer sales, lower inventory, and higher prices,” claims Robert Frick, corporate economist at Navy Federal Credit Union.
At the moment, sales are at a high the inventory stands at a 2.9-month supply, according to NAR. The figure is lower than 3.3 months at the end of November but an increase over 1.7 years in 2021.
Based on this data and others, industry experts have an unfavourable outlook for when inventory levels begin to normalize.
“I think we’re likely to see the low inventory persist in causing problems for the housing market until the year 2023,” states Rick Sharga, executive vice director of market research for ATTOM Data. In addition, with 70 percent of homeowners with a mortgage rate less than 4, Sharga says we’re likely to see a flood of houses sometime soon.
However there are mixed signs that the world of homebuilding single-family construction started up 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 information provided by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.
“More important, in December 2022, residential construction starts in single-family homes was less than in December 2021, with 909,000 homes being built this year, compared to 1.338 million in December 2021,” says Sharga.
Yet, the latest survey of builder sentiment showed the cautiousness of optimism, with builders’ confidence growing after 12 months of decline. However, it was only an incremental increase from 31 to 35, according to the most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) report. Builders’ confidence is still at a low level (50 or higher means greater confidence in the construction market ahead); therefore, there need to be many more consecutive increases before we can see a significant increase in the number of new homes built.
“The most important thing to remember is that there’s not an unlikely scenario that could lead to inventory levels reaching historically normal levels in 2023. That implies potential homebuyers will have 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 that has kept home prices high, many economists believe that the housing market will likely stabilize in the wake of double-digit percent increases observed in home prices over the past few years instead of crashing.
“After an enormous boom in the last two years, there’s likely to not be any change nationwide” regarding home prices by 2023, as stated by Yun.
Some experts think that certain areas might see sales and price rise, particularly in places where home prices have been relatively affordable in the last couple of years in relation to the median income.
“We’re expecting a 5 percent drop across the country,” says Sharga. “Some markets, whether you believe that or not, could have prices that continue to rise.”
Others say that homeowners today are on a more solid footing than those who came out of that 2008 crisis, with a large percentage of borrowers with equity in their homes. Therefore, the risk of a crash in the housing market is shallow.
“Homeowner equity levels are at the highest point it’s ever been for the last few decades, which means that homeowners can see a lot of worth in their homes,” says Nicole Bachaud, one of the economic analysts at Zillow.
Bachaud adds that mortgages have become less risky.
“There are many regulations and limitations on the mortgage market, which makes it much more secure, and less volatile and risk-free as it was in the market following the 2008 financial crisis,” she says.
If you were in the midst of a market crash in the ordinary course, you’ll observe a 20 to 30% decrease in the value of homes and a decrease in sales of homes–much more significant than what’s happening now. Another sign of a crash that has been missing is a rise in foreclosures.
“I believe we’re likely to watch the markets slow instead of crash,” Sharga says.
Will There Be More 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, foreclosures remain under the pre-pandemic level. In 2022 the foreclosure rate was down 34% compared to the year prior in The Year-End 2022 U.S. Foreclosure Market Report released through ATTOM Data.
For December 2022, foreclosures started up 72 percent from the previous year and down about percent between November and December.
“It appears clear that the efforts by the mortgage industry and the government during the outbreak, in conjunction with a healthy economy, has helped to avoid thousands of foreclosures that are unnecessary,” said Sharga in the report.
One of the significant differences now in comparison to the 2008 crisis in housing is that a lot of homeowners, as well as those who are struggling to pay, have seen a considerable rise in the value of their homes over the last few years. That means they own equity and aren’t underwater, which is when you owe more money than the home is worth.
Sharga pointed out that those in foreclosure are using the equity they have built up in their houses by refinancing their homes or selling them for profits. “It appears likely that this will be an ongoing trend until 2023,” Sharga said.
When Should I Buy a Home in 2023?
A house purchase–in any market — is a personal choice. Because houses are the largest single purchase that most people make in their lifetimes, you need to have a sound financial position before committing.
Utilize the mortgage calculator to estimate the monthly cost of your home concerning your down payment and the interest rate.
There are better ways to purchase a house than the idea of predicting what could be the case next year. “Buyers who are waiting today with hopes of lower prices in the future could be dissatisfied,” says Neda Navab, the president of the U.S. region at Compass, a tech-based real estate firm.
Navab believes home prices in the hotter market over the last few years to be lower. Still, she doesn’t anticipate an all-encompassing, nationwide price decrease like that seen following the 2008 financial crisis.
Instead of waiting for cheaper rates, experts suggest buying a house according to your budget and requirements. If you can find a house that you like in a location you like and that also meets your financial budget, then it’s the perfect fit for you. But, if you are willing to make a lot of sacrifices to purchase a home, you may get buyer’s remorse which could force you to let go of the house.
Tips for Buying in Today’s Housing Market
Set a budget first and adhere to it. Even with a slight increase in the number of houses available for sale, buyers are still faced with higher costs and mortgage rates nearing 7 percent.
“The major issue right now is the gap between sellers and buyers,” Rita says. Rita.
Tayenaka, the owner of Orange County in California, operates the Coast to Canyon agency Coast To Canyon. “Buyers are looking to lower their prices, and sellers are looking for the price of last year’s.”
While buyers are enjoying some flexibility now, they must bear that this is a buyer’s market when they think about their alternatives.
Tips for Selling in Today’s Housing Market
The first step to an effective sale is to find an agent who is familiar with the area well and comes highly recommended. An experienced agent will collaborate with you closely to determine the best price for your home while addressing inquiries and offers from potential buyers.
Tayenaka speaks of the enormous number of houses that have fallen out of escrow this year to serve as a warning for sellers still demanding prices in 2021. “Everyone believes their home is unique,” she says.
Although the market might remain towards you, It’s the best option to present your house in the best light. Few people have money to devote to repairs and renovations; however, a bit of work and effort can make a difference. The first thing to do is eliminate clutter and organize, then clean. Even if the house is old, a tidy area gives potential buyers a chance to see the house’s future.
