One of the biggest questions on everyone’s mind is “what will happen with the housing market in 2023?”
If you’re considering selling or buying a home this year, you need a rundown of all the back-and-forth activity we’ve seen.
Buyers have started dipping their toes back into the housing market as mortgage rates trend downward, creating bidding wars in DC, Maryland, and Northern Virginia. However, the volatility of rates continues to leave some on the fence. Even though the beginning of the year saw a decline in rates and an increase in mortgage applications, rates jumped back up and slowed the trend.
After more than a year of interest rate hikes, the Federal Reserve met in June and announced that it would keep the target federal fund rates between 5%-5.25%. What does all this spell for the housing market over the remainder of 2023?
Read on to discover what you need to know about the current housing market!
Recent drops in interest rates could push more potential buyers into the market. However, limited inventory challenges remain, and the number of existing homes for sale is low. There's been a surge in single-family housing starts, which is encouraging.
Home prices have increased slightly, but low supply continues to trigger bidding wars, especially in high-demand areas like DC, Maryland, and Northern Virginia.
“Mortgage rates decreased after a three-week climb,” said Sam Khater, Freddie Mac’s chief economist. “While elevated rates and other affordability challenges remain, inventory continues to be the biggest obstacle for prospective homebuyers.”
We're still experiencing a seller's market, and we currently only see 3 months or less of housing inventory. Compare this to a neutral market with 6 months of inventory, while a buyer's market has 7 months or more.
After almost a year of homebuilders’ negative outlook for single-family home construction, there may be a light at the end of the tunnel.
Builder confidence for newly-built single-family homes rose 5 points in June to 55, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This is the sixth month of gains and the second month of positive builder sentiment, which is a reading above 50.
Freddie Mac says that although interest rates have hovered between 6% and 7% for over six months, buyers have adjusted and driven home sales to its highest level in more than a year. New home sales have rebounded more strongly than the resale market due to the greater supply of new construction.
Groundbreaking on single-family homes increased in May by the most in three decades, Reuters reported, and permits for new construction also rose significantly. However, credit conditions are in the process of tightening, which could make it difficult to keep pace with the rebound.
Mortgage rates nearly doubled in 2022 after hitting rock bottom in 2021. Mortgage rates declined slightly to just over 6% for a 30-year fixed-rate mortgage earlier this year, but they've been edging higher since then.
According to Freddie Mac, the average interest rate on a 30-year fixed-rate home loan hit 6.79% on June 1, up from 6.39% in the first week of May. Since then, rates have fallen to 6.71% for the final week of June.
Nadia Evangelou, senior economist and director of real estate research at the National Association of Realtors (NAR), said that the two main factors driving mortgage rates have become more favorable.
Inflation dropped to 4%, and the Federal Reserve has halted its interest rate hikes after raising rates for more than a year. The latest U.S. Bureau of Labor Statistics data shows that CPI rent growth has peaked and is beginning to cool.
Evangelou says the decelerating trend in rent prices may help further slow inflation, which should bring down mortgage rates.
Last year, Realtor.com published its housing forecast for 2023, estimating that the number of homes for sale would increase and home prices would continue to climb. But things have certainly changed, which is why Realtor.com has revised its forecast to reflect what's happening in the current market.
“Home costs are still going to be higher for buyers in 2023 because home price declines are very mild and not universal,” says Realtor.com chief economist Danielle Hale. “Some areas are still seeing home prices going up and mortgage rates are still very high.”
Realtor.com predicts median home prices to go down 0.6% in 2023 compared with 2022. The original forecast was price growth for existing homes of 5.4%. This is because prices have fallen in some of the most expensive real estate markets.
Mortgage rates are also expected to drop to 6.1% by the end of the year, which could help more first-time buyers get their foot in the door.
The housing market is cooling, but that doesn't mean you should prepare for a real estate market crash in 2023.
Economists now believe that the housing market will likely correct itself rather than crash. Experts also say whether home prices rise or fall will depend on where you're looking.
Despite price declines in some areas, experts say homeowners will fare better than those coming out of the 2008 financial crisis.
“Homeowner equity is at the highest level it’s been in the past several decades, so homeowners have a lot of value in their home,” says Nicole Bachaud, an economist at Zillow. - Forbes
Sellers: if you’ve been waiting for a sign to list your home, this is it!
Now is an excellent time to sell and take advantage of low inventory and decent affordability for buyers. The stable jobs economy in the DC, Maryland, and Northern Virginia area ensures there are buyers currently waiting on the market.
Market conditions are stabilizing, but prospective buyers should still prepare to face some stiff competition.
And remember: when rates do eventually drop even further, you can always refinance to that lower rate! Savvy home buyers use this strategy to get into the market then save money later.
The housing market has shifted drastically over the last few years, but don’t let the high rates and low inventory discourage you if you’re ready to make a move.
Experts predict that we’re safe from the housing market crash we saw over a decade ago. And while interest rates likely won’t go as low as they did during the pandemic, buyers and sellers will still benefit with expert real estate leadership.
Reach out today and find out how to navigate the current housing market to make your dream home a reality!
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