We’re in the final stretch of 2022, and the housing market is all over the place, but it remained a seller’s market despite what’s happening with interest rates and inventory.
So what we should expect for 2023? It’s up in the air, of course, as we see what happens with inflaFon and the economy, but here’s what experts have to say about everything housing market related in 2023.
What Will Happen with Interest Rates?
The housing market relies heavily on interest rates. So if borrowers can’t afford a mortgage, then there’s not much of a housing market to consider, right?
Unfortunately, no one can predict what will happen, but what we can do is look at the scenarios that could affect interest rates.
Infla>on Con>nues Increasing
If inflaFon conFnues at its current pace, interest rates will conFnue increasing. No one knows how high they will go, but most experts predict between 8.5% and 9%. This is because the Fed will have to conFnue jumping in and increasing rates, which could push the economy into recession. If that happens, rates might fall, but so will most borrowers’ ability to afford a home.
InflaFon and a recession are bad for the housing market and mortgage rates. What we need is for the economy to stabilize and for the housing market to see major changes.
Infla>on Decreases or Stabilizes
Mortgage rates might not decrease if inflaFon calms down, but they could stabilize. While interest rates are almost double what they were at the start of the year, stabilizing rates would be a good start, allowing buyers with large down payments to jump into the housing market.
Right now, the housing market is best for cash buyers because they aren’t affected by interest rates. However, anyone needing financing depends on the economy stabilizing and interest rates falling.
How Will Home Values be Affected?
So far, the predicFon is that home values won’t drop because buyers sFll have plenty of interest and not a lot of inventory. This seller’s market keeps home values high, making it more difficult for buyers to enter the market.
Overall, most experts predict home prices will eventually fall five to ten percent next year, and even more in luxury markets.
However, with renewed interest in homebuying, especially from the 30-something crowd, home values aren’t expected to drop drasFcally. If the trend conFnues and more buyers can enter the market, especially those not affected by interest rates, then housing prices may stay stable.
What’s Predicted for Housing Sales?
Housing sales are highly dependent on interest rates and what happens in the market. If interest rates remain steady or increase further, housing sales will likely take a hit.
High rates or even an economic recession will affect housing sales. How much they drop is yet to be seen, but experts anFcipate a drop.
Lower housing sales also mean homes will be on the market longer. At the start of the year, we saw homes selling in a maZer of a few days. However, with higher interest rates and fewer qualified buyers, the days on the market will increase. This is bad for sellers but could be good for buyers.
What was once a seller’s market, with buyers fighFng for homes and paying more than a home’s value, will quickly become a buyer’s market.
In a buyer’s market, there are more homes than buyers. This gives buyers more flexibility. They have more room for negoFaFons and don’t have to make rash decisions about buying a home because homes won’t be flying off the market.
A Future Look at Housing Inventory
Housing inventory is highly dependent on interest rates. If interest rates increase further, most homeowners aren’t going to trade their current low interest rate for one that’s 8% – 9%.
This will decrease housing inventory. In addiFon, if interest rates remain high, homebuilders will conFnue scaling back. They don’t want to be stuck with an inventory they can’t sell, pu\ng them out of business.
If interest rates fell, though, 2023 housing inventory may increase, but the chances of interest rates decreasing are slim.
Buyers or Sellers Market – What Will 2023 Be?
Buyers and sellers always want to know if the market favors buyers or sellers. In the last couple of years, it’s been heavily favored by sellers. There were many more buyers than sellers in the market, which drove up prices and made homes disappear from the market faster than most buyers could see them.
What will happen as we enter the New Year?
Most experts agree it will be a balanced market. It won’t be Flted one way because interest rates will remain high. With higher interest rates, fewer buyers will be in the market, and fewer sellers will list their homes for sale. This doesn’t Fp the scale in either direcFon, making it a balanced market.
However, now that most businesses and offices are open again, we might see a higher demand for larger market purchases. During the pandemic, we saw an influx of people moving to remote areas with more space and tranquility because almost everyone worked remotely.
Since things are returning somewhat to normal, a larger market will be in higher demand as more people want to move closer to where they work.
Final Thoughts
2023 will likely shape up to be an interesFng year for the housing market. If interest rates don’t drop drasFcally, which they aren’t predicted to do, the housing market will be tough for buyers and sellers. There might be inventory, but it won’t be as high as we’ve seen, and the days on the market will be much higher than we’re used to.
If interest rates drop, more buyers will enter the market, and more homeowners may be willing to sell their homes. The economy is the largest factor, so keep a close eye on what the economy does to help you decide the right move for homeownership in 2023.
