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.
As buyers cautiously test the waters, again creating bidding wars in DC, Maryland, and Northern Virginia, 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.
The Federal Reserve decided to increase interest rates several times in spite of recent bank collapses, in the hopes that inflation will stabilize. What does all this spell for the rest of 2023?
Read on to discover what you need to know about the current housing market!
Home prices continue to inch lower as the year progresses, but severely limited inventory triggers bidding wars in high-demand areas like DC, Maryland, and Northern Virginia.
The low inventory indicates a seller’s market: we currently see only 3 months or less of inventory. Compare this to a neutral market, which has 6 months of inventory, while a buyer’s market has 7 months or more.
And even though prices are decreasing, the rate of home sales is also decreasing.
Still affecting the number of home sales is the fluctuation of mortgage rate, influenced by interest rates.
On May 3rd, the Federal Reserve voted to raise interest rates once again, increasing by one quarter of a percentage point. Rate increases may be put on hold for the remainder of the year, however, as inflation falls.
Mortgage rates did increase this month, but experts are optimistic that rates will decline by the end of 2023. Sam Khater, chief economist, stated that as inflation cools, mortgage rates should follow suit and slowly decrease over the remainder of the year.
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 rose 5 points in May, suggesting that the tight inventory is driving many qualified buyers to new construction.
According to the National Association of Home Builders chief economist Robert Dietz:
“In March, 33% of homes listed for sale were new homes in various stages of construction. That share from 2000-2019 was a 12.7% average. With limited available housing inventory, new construction will continue to be a significant part of prospective buyers’ search in the quarters ahead.”
Builders are still facing snags like elevated lumber costs and shortage of building materials, as well as tightened credit conditions for residential construction. But this hasn’t stopped them from reducing the incentives they offered a year ago to entice buyers into new construction, and that doesn’t appear to hurt their sales, either.
After the wild ride of 2022, when mortgage rates more than doubled in response to the inflation and interest rate hikes, early 2023 sparked hope when mortgage rates dropped.
However, the drop did not last. Interest rates have increased 10 times in over a year, keeping mortgages higher than average.
Despite the collapse of multiple banks and multiple rate hikes, the Federal Reserve once again raised interest rates by a quarter of a percentage point, hoping to curb inflation. Inflation does seem to be cooling, but it’s hard to determine whether that will continue.
Experts predict that interest rates will continue to rise or stabilize, but they don’t expect them to drop significantly anytime soon.
“Rates for home loans are still caught in a tug-of-war between high inflation and the Federal Reserve’s actions to restrain inflation, which often indirectly pushes long-term mortgage rates higher.” – Forbes.com
After a back-and-forth beginning to 2023, mortgage rates currently average 6.57% for the final week of May.
Long-term mortgage rates are somewhat influenced by inflation and the Fed’s decision on interest, but are primarily affected by the bond market.
A potential mortgage rate drop may inspire potential home buyers.
The best inspiration to buy is if rates drop and stay at that rate or continue to fall. More buyers will then feel confident enough to jump into the housing market.
Nadia Evangelou, National Association of Realtors Senior Economist, predicts mortgage rates could stabilize, falling to 5.8% by the end of the year. As we’ve seen with the latest news from Freddie Mac, mortgage rates are still trending upwards.
If they do drop, we could see an uptick in mortgage applications and increased movement of home sales. But even when mortgage rates drop, lack of inventory will push home prices higher.
Another real estate market factor is today’s buyer. Currently, millennials are the largest group buying homes.
The average age of a first-time buyer is 33, and there are more 33 year-olds today than in 2008. Add to that the huge discrepancy of available homes on the market: from 4 million in 2008 down to less than 1 million currently, with about 400,000 of those currently under contract.
How does this affect the market? The largest group of home buyers, out hunting for a home during the lowest point of inventory in history, is a recipe for an even hotter real estate market than originally predicted!
Even though we’ve heard gloomy predictions from some experts, a real estate market crash is not on the horizon.
Although mortgage rates are still high, interest rates seem to be evening out and may even taper off. This will help stave off a severe crash like we saw over a decade ago.
The other factor preventing a housing market crash is low inventory. Many homeowners have low mortgage rates that prevent them from selling and accruing a significantly higher mortgage. As a result, fewer homes are going on the market.
Inventory is also affected by less new construction. After the wave of new builds in 2007 that sat empty when the market crashed, builders are cautious not to repeat that scenario.
Ultimately, conditions are not the same as 2008 to repeat a housing crash of that nature.
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.
But don’t sit on this opportunity! Rates may continue on a steep upward trend (as they are expected to), affordability will go down, and fewer buyers will be ready to pounce.
If you’re a buyer, you’re no doubt ready for the increased inventory that usually comes with the spring season. Many anxious buyers have been waiting months for spring to arrive, in hopes that their dream home will come on the market.
With rates fluctuating frequently, there may be pockets of opportunities for serious buyers to jump in with less competition. If you’re looking to buy, now is the time.
And remember: when rates do eventually drop (whenever that may be), you can always refinance to that lower rate! Savvy home buyers use this strategy to get into the market then save money later.
While the real estate market is very different now than it was several years ago, 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, even with a possible recession.
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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