Homebuyers have weathered a few rough years recently. Home price appreciation, a seller’s market, multiple bid situations — you might have dropped out of the market in 2021 and 2022. After waiting out the housing market storms, will 2023 be your year to buy a home?
Market trends look better for buyers in 2023. Prices have been cooling off, there are fewer total bids on homes, and more inventory. Many real estate agents predict a more balanced market.
HomeLight recently surveyed over a thousand top real estate agents nationwide to get their read on the 2023 market. The results of the HomeLight New Year 2023 Top Agent Insights Survey show that over 45% of agents predict a more balanced market, and 34% predict a buyer’s market.
If you’re hoping for better luck buying a house in 2023, read on to find out if you’ll be facing sunny days or storm clouds.
Housing trends that will affect homebuyers in 2023
Homebuyers in 2023 can expect a much easier market than the last few years. While some trends — such as inflation and higher interest rates — point negative, in general, there’s a more positive picture if you’re shopping for a home.
Buyers can expect a more balanced market compared to 2021 and 2022
Home sellers had the advantage in the last two years — high demand, low interest rates, and low inventory led to a market that could only be described as hot as an August day in Miami. But things are shifting. In 2023, 44.83% of agents predict a balanced market, 33.82% foresee a buyer’s market, and only 11.70% of agents predict a seller’s market.
Christina Skurat is a real estate agent serving on the top-performing Kerby Skurat team in Plymouth, Minnesota. In her market, “there’s a trending back toward more of a sense of the world being more normal and stable.” Recently, it now takes three to four months for the average home to sell, which is a massive shift. Buyers won’t feel as pressured to see a home once and rush to make a decision in one weekend. They can shop around a bit more and still find a house.
Home prices are coming down (a bit)
Home prices started dropping in July of 2022. While the decrease was small — just 1.6% between July and August — experts are predicting a decline of 8-10% by August 2023. Higher-priced and luxury homes have seen sharper drops in prices, as buyers of these homes often don’t qualify for Fannie Mae or Freddie Mac mortgages.
Mortgage rates are expected to come down slowly
In March 2022, the Federal Reserve approved the first rate hike since 2018. The Fed Funds rate is the interest rate charged to banks when they borrow from the Federal Reserve. When they pay more for capital, they pass it along by raising the interest rates paid by consumers.
Recent interest rate increases led to a decrease in home prices — many buyers don’t want to pay more for their mortgage. If that was you, there’s good news. Experts predict a drop in mortgage rates, most likely during the latter half of the year. Skurat says that while buyers are “really tracking rates and responding emotionally to them” at the moment, she expects rates to go down a bit more next year and get closer to 2019 levels.
Inventory is on the rise
Low inventory contributed to the seller’s market of 2020 through 2022. Think about it — if you have 50 buyers, but only 25 homes for sale, those buyers will compete, and prices will rise. But our agents predict a better situation in 2023.
Over 50% of agents say that inventory is already increasing in their market, and survey respondents think that buyers will have 11% more homes to choose from in six months. In October 2022, the National Association of Realtors said that inventory was up 0.9 months from October 2021. This measures how quickly all homes on the market would sell at the current sales rate. A higher number equates to more inventory, which benefits buyers.
No more bidding wars!
With more inventory to choose from, bidding wars are becoming less common. Skurat cautions that “homes are still selling with multiple offers when priced attractively,” but it’s not at the same extremes. Bidding wars are starting to cool, say 83.14% of agents.
Homes are taking longer to sell
Homes are spending more time on the market before selling. This goes hand in hand with buyers having more time to tour homes, make decisions, and facing less competition. In August 2022, the median days on market was 14 days, but by October that had risen to 21 days.
Skurat thinks this is a positive trend. “When you sit on the market buyers are looking at your home more logically — how can I negotiate on it? — rather than getting emotions involved when bidding,” she tells sellers. As a buyer, you can make a more rational decision if you can take more time.
In addition, home sales fell 5.9% from September to October, and 28.4% from one year ago.
Contingencies are coming back to the negotiation table
Desperate buyers waived everything — including the kitchen sink — during the hot housing market. If they waived an appraisal contingency and the home didn’t appraise, they’d have to make up the difference in cash. Home inspections were often either informational only or nonexistent.
If that made you understandably nervous and you didn’t want to take those risks, you might have decided not to compete with these buyers. The good news is that contingencies are back on the table. In our survey, 77% of agents said that contingencies are coming back.
Kris Shook is a real estate agent in Tacoma, Washington who works with over 77% more single-family homes than average agents in his area. He says that buyers are “not having to compete and go way over list price, do an appraisal waiver and promise to pay the difference out of pocket, waive an inspection and buy a home with a fault in it that’s going to cost you tens of thousands of dollars.” Add that together, and it equals a friendlier market for first-time homebuyers.
First-time buyers are still struggling with affordability
Despite lower home prices, higher interest rates can price some buyers out of the market. What was an affordable home a year ago might cost them several hundred, or a thousand, dollars more a month now. In our survey, 46% of agents predict that first-time homebuyers will represent a smaller portion of all buyers in their respective markets in 2023. How do agents think first-time homebuyers will behave in 2023?
First-time homebuyers will explore more affordable areas, say 67.06% of agents. Adjusting your expectations to align with the current market expands your opportunities. An experienced agent could suggest a neighborhood that you’ve never heard of, but which would be perfect for your needs.
They will also increasingly use rate buydowns to secure a lower interest rate, according to 53.90% of agents. With a rate buydown, the seller pays down your interest rate. Skurat is seeing it happen in her market, where “buyers are asking for sellers to buy down their rates, a 2/1 buydown, or a permanent rate buydown.”
Shook, who operates in a completely different area and state as Skurat, is also seeing rate buydowns. He explains that they work as follows, “First year, buying the interest rate down 2%. 6.5% — first year at 4.5%, second year 5.5%, third year resets to 6.5%. It costs quite a bit of money, but sellers will do it instead of paying closing costs.”
It’s only natural to be a bit wary if the hot fires of the housing market in 2020 through 2022 left you feeling burnt. Putting in bids on homes and losing out takes an emotional toll. Over half — 51.75% — of first-time homebuyers will continue to delay their plans to buy in 2023 according to our top agents.
Skurat’s advice to first-time homebuyers is to “have realistic expectations on condition — first-time homebuyers still tend to want to buy a completely move-in ready house or completely updated, but the price point doesn’t afford it.” This goes hand in hand with exploring more affordable areas where homes may not be in tip-top shape but are still livable. And 44.83% of agents said that first-timers will look for smaller or older homes, i.e., homes that might not have been fully updated.
Will you be able to buy a house in 2023?
While the answer depends on your personal circumstances, the good news is that it will be a better market for buyers in 2023.
While you might pay a higher interest rate, you could pay less for a house as home sales and prices trend downward, and have more control over the purchase through contingencies. The higher interest rate could be offset by a lower price for the house, and you could ask the seller about a rate buydown. In other words, a home purchase has many pieces, some of which can be moved to your advantage.
“My personal opinion is that you’re better off buying the house you like now and not speculating on a better market in the future,” says Skurat. “No one wins by trying to time the market, and you’re either stuck in the wrong home or renting (and renting goes up in cost).” Both Shook and Skurat point out that refinancing is always an option when rates come down again in a few years.
If you have questions about the market in your area, reach out to an experienced agent. These agents will, “keep by [a buyer’s] side, hold their hand and give them hope that it will happen,” Shook says.
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