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The housing market is a complex beast and predicting its future is no easy feat. However by analyzing expert opinions and current trends, we can get a glimpse of what 2023 might hold for homebuyers and sellers.
Key Takeaways:
- Mortgage rates are expected to remain high in 2023, hovering around 7%. This will likely continue to dampen buyer demand, leading to a slower market compared to the frenzy of recent years.
- Home prices are predicted to appreciate at a slower pace than in the past, with experts forecasting a 5-15% increase over the next five years. This means that while affordability may improve slightly, it will still be a challenge for many potential buyers.
- The housing market is expected to remain a seller’s market for the foreseeable future, with low inventory and high demand. However, a shift towards a more balanced market is predicted within the next few years.
- Experts believe that the housing market will not crash, despite concerns about a bubble. Stricter lending standards and strong underlying demand are expected to prevent a major downturn.
Let’s dive deeper into the details:
Mortgage Rates: Riding the Rollercoaster
The biggest factor influencing the housing market in 2023 is undoubtedly mortgage rates. After a dramatic rise in 2022, rates are expected to remain high, hovering around the 7% mark. This is significantly higher than the historic lows we saw just a few years ago, and it will undoubtedly impact affordability for many potential buyers.
What does this mean for you?
- If you’re a buyer, be prepared for higher monthly payments. You may need to adjust your budget or consider a smaller home than you originally planned.
- If you’re a seller, you may see fewer offers and longer selling times. However, the high demand for homes will likely still result in strong prices.
Home Prices: A Slower Climb
The rapid price appreciation of recent years is expected to slow down in 2023. Experts predict that home prices will increase at a rate of 5-15% over the next five years. This is still a significant increase, but it’s a far cry from the double-digit growth we’ve seen in the past.
What does this mean for you?
- If you’re a buyer, you may have more time to save for a down payment and find the right home. However, affordability will still be a challenge for many.
- If you’re a seller, you may not see the same windfall profits as in recent years. However, you can still expect to sell your home for a good price, especially if it’s in a desirable location.
Seller’s Market or Buyer’s Market?
The housing market is currently a seller’s market, with low inventory and high demand. This means that sellers have the upper hand in negotiations, and buyers often face bidding wars and competition. However, experts predict that the market will shift towards a more balanced state within the next few years.
What does this mean for you?
- If you’re a buyer, you may need to be patient and persistent in your search. However, you may have more negotiating power as the market cools down.
- If you’re a seller, you may want to list your home sooner rather than later to take advantage of the current seller’s market conditions.
Crash or No Crash?
Despite concerns about a housing bubble, experts believe that a major crash is unlikely. Stricter lending standards and strong underlying demand are expected to prevent a significant downturn. However, some experts predict that prices could decline by 5-10% in the next year.
What does this mean for you?
- If you’re a buyer, you may be able to find a good deal on a home, especially if you’re willing to wait for the market to cool down.
- If you’re a seller, you may want to consider selling sooner rather than later to avoid a potential price decline.
The Bottom Line: A Market in Transition
The housing market in 2023 is expected to be a year of transition. High mortgage rates will continue to impact affordability, but the market is expected to become more balanced over time. While a crash is unlikely, some experts predict a slight price decline. Ultimately, the best course of action for both buyers and sellers is to be patient, do your research, and seek expert advice.
Forecast for mortgage rates and types
The chief economist at NAR, Lawrence Yun, predicts that mortgage interest rates will likely hover around 7% for the majority of 2024. But he believes that rates have probably peaked: “I think we’ve already reached the peak in terms of interest rates,” he said to attendees of the NAR convention in November. Within two years, he says, the rate should return to 5. 5 or 6 percent, assuming that there is no ongoing upward pressure on all borrowing costs due to the federal budget deficit.
Because rates are high, Yun foresees a greater interest in adjustable-rate mortgages through next year. However, after that, he predicts 90 percent of Americans will return to the traditional 30-year fixed-rate mortgage.
Greg McBride, CFA, Bankrate’s chief financial analyst, thinks the 30-year fixed will remain the dominant mortgage product. “A fixed-rate mortgage provides the certainty borrowers want,” he says. According to him, “it is the best indicator of affordability, and taking an adjustable-rate mortgage has very little upfront benefit because those rates aren’t much lower than fixed rates right now.”
Predictions for home prices
Yun predicts that purchase price tags will not significantly change nationally in 2019—variations of only roughly 5% are anticipated. Overall, in five years, he expects prices to have appreciated a total of 15 to 25 percent.
McBride predicts home prices will average low- to mid-single-digit annual appreciation over the next five years. According to him, this rate of appreciation is in line with the long-term average of home prices rising at a pace that is marginally higher than the rate of inflation.
Housing Market Crash of 2024: Let’s Be Brutally Honest In This Video
What will the housing market look like in 2023?
Here is a summary for year-end 2023 and some predictions for the housing market between 2024 and 2028. Although a recession is no longer forecasted, economic growth is expected to decline sharply from the robust rate of 4.8% in the third quarter of 2023. However, should the country enter a recession, these predictions would change accordingly.
Where should you buy a home in 2023?
Most Midwest metropolitan areas haven’t seen extreme increases in home prices compared to almost all other areas in the United States. This is why one of our housing market predictions for 2023 is more home buyers will look to places like Iowa, Missouri, Illinois, Kansas and Ohio for an affordable home.
Will home prices go down in 2023?
As a result, we’ve revised our home price forecast from growth to decline, with a modest 0.6% slip for 2023 as a whole. Home sales are still expected to register lower, with a decline of 15.8% for 2023. This would mean a total of roughly 4.2 million home sales for the year, the smallest annual total since 2012.
What will home price growth look like in 2023?
As a result, home price growth is expected to continue slowing, dipping below its pre-pandemic average to 5.4% for 2023, as a whole. As higher mortgage rates cut into homebuyer purchasing power, the monthly cost of financing the typical for-sale home will average more than $2,430 in 2023.