Will 2023 be a good time to buy a house according to the experts?
The US housing market has begun to cool after prices rose at a breakneck pace since the onset of the pandemic. This could produce a buyer’s market in 2023.
Two main factors have put the brakes on the US housing market over the past few months. The Federal Reserve’s aggressive rate hikes to fight inflation have helped to drive up mortgage interest rates on top of home prices increasing at a breakneck speed over the previous two years.
This could create a situation in 2023 where homebuyers will be better positioned when negotiating the purchase price when hunting for a home. Here’s a look at what the experts are saying to expect in the coming year.
Mortgage rates could remain high in 2023
Mortgage rates hit a two-decade high last month, and while they have retreated at their fastest pace since 2008 they still remain more than double the historic lows of 2021. The average 30-year fixed-rate mortgage, the most popular home loan in the United States, currently sits around 6.33 percent after jumping over the 7 percent mark.
Fannie Mae reversed course in its November 2022 housing forecast from the previous month predicting that rates will now increase to 7.0 percent in the final quarter of 2022 and remain there into the new year. Then they will gradually come down hitting 6.5 percent by the end of 2023 slightly higher than the 6.2 percent the government-sponsored enterprise had forecast before.
Which direction home loan rates will go next year is difficult to determine being influenced by a number of factors. One of those is the monetary policy of the Federal Reserve. And although Fed chair Jerome Powell said that the time for policymakers to slow the pace of future interest rates hikes, he signaled that borrowing costs will continue to remain high until inflation is under control.
Housing prices expected to drop as demand cools
Another factor that will determine where mortgage rates go is conditions in the housing market. Sentiment has been dampened not only by doom and gloom about an impending recession but also high prices that have forced many would-be homebuyers out of the market.
On the first matter, Goldman Sachs recently said that the US will narrowly avoid a recession in 2023. “As inflation fades and unemployment nudges up slightly” there is a good chance that the US will “stick a soft landing next year” according to the bank’s analysts.
On the second, home prices in the US increased by around 45 percent over the past two years. While they are expected to come down as demand shrinks, CoreLogic has forecast that there is a greater than 50 percent chance of that happening in over 90 percent of regional housing markets, they are not expected to go into freefall.
Around 85 percent of Americans locked in a rate under 5 percent according to an analysis by Redfin. These people are unlikely to want to move unless they have to. This will limit the supply of houses on the market in addition to an expected slowdown in new home construction expected next year. As well, millennials are reaching the age where they are looking to buy their first house.
All three factors, as well as sellers delisting their properties, will play into limiting how far the market drops. But in the meantime, the number of people expected to be out looking for a home until conditions improve will be smaller, potentially giving them an advantage when negotiating the purchase of a home.