Spring Market Preview: 2023 Edition
What lies in store for the housing market in the Spring of 2023? That's the real question, isn't it? With a dizzying myriad of factors all weighing in the balance, what are we to make of the state of the housing environment, and what will the next few months look like?
We'll discuss all those things as we once again put on our thinking caps to make our predictions for Spring for 2023, and what that means for both new and returning homebuyers.
Start of Spring Selling Season
Normally the colder months see a decrease in the number of home sales. As the days get longer, and temperatures start heating up, however, Spring is when the market begins to bloom. Generally speaking, we should expect to see more homes going on the market — with a commiserate number of home hunters to go with it.
So, if you're going to be shopping for a house in the Spring, be prepared to have more competition than you would have in the Fall and Winter. Conversely, the variety of homes available for your consideration will be greater.
Bottom line: We recommend getting your FICO® score in order as well as getting pre-approved even before you start the house hunt. Both of these things can give you an edge in a market that you should expect to be at least partially contested.
Where are rates going?
If you've kept an eye on mortgage rates over the last year, you've noticed that they've gone up steadily, peaking at just above 7% towards the end of 2022. Since then, the rates have come down, then went back up, and are back down a bit to around 6.55% at the time of this writing, which is well under the historical average of 7.75%.*
As Lawrence Yun, Chief Economist for the National Association of Realtors (NAR), put it, "The upcoming months should see a return of buyers, as mortgage rates appear to have already peaked and have been coming down since mid-November." He said that before several bank failures shocked the industry in March, which confused the rate situation even more.
While, the FED may continue to raise rates in a bid to defang rising inflation, the result of that would inevitably lead to a rise in mortgage rates. The correlation is not exactly one-to-one, but these inflationary measures are likely to continue until the FED is satisfied with the result.
How high rates go will really depend on how successful these actions prove to be. However, once certain metrics are met, we should expect that rates won't stay high just for the sake of it. Eventually, rates will come down, but just how long that will take is something that's difficult to forecast.
Bottom line: As the axiom of modern mortgages goes: Date the rate, but marry the house. Even if mortgage rates seem like a barrier to homeownership, the possibility of refinancing or using a temporary buydown like our Rate Reduce program are ways to help mitigate the situation whether rates stay the same, drop or go higher.
The last two years, home prices have skyrocketed to record highs. While there was some evidence of home prices starting to cool off in the latter-half of 2022, they remain extraordinarily high. It's safe to say that the rate at which home prices are growing have leveled off and even reversed in some markets.
That's great news for sellers, but less great for buyers. It means that buyers still have to contend with higher prices, even if they have slowed in their meteoric rise. However, since price appreciation has slowed, it’s safe to say that you won’t be buying a home when prices are at the top of the market.
Bottom line: For the time being, high home prices are going to be a fact of life. This can be daunting for many potential buyers, particularly first-timers, but property values have generally been known to appreciate, or grow, over time.
So, while a home might be a bigger purchase than you maybe anticipated, in the long run it will likely be worth more than what you pay for it. There are other factors that might affect home prices, which leads us to our next point.
A distinct lack of housing inventory has cast a shadow over virtually every mortgage market since even before the pandemic. This was further exacerbated by critical shortages of building materials and labor. While those things are still a factor, and inventory is still a concern, there are signs that strides are being made to address it.
According to Housing Wire, the rate of multi-generational new home construction is higher than it has been since the 1970s. Part of this can be attributed to the continual lack of inventory, where many homebuyers saw constructed homes as a way to break away from the contested properties of the existing market.
We're also seeing second homes come onto the market as older homeowners seek to divest themselves of additional properties. When you combine that with properties that were once short-term rentals coming up for sale, as well as space in urban areas that were left open as buyers sought more space to work from home, you have some places where inventory may not be as dire as it has been.
Bottom line: Of course, your mileage may vary, depending on the specific market conditions in your area. The distribution of available homes to potential buyers is far from uniform across the country. Just keep vigilant and move quickly if you find something you think is worthwhile. Ask your loan officer about what programs we have, like Same Day Mortgage and PowerBid Approval, to help give your offer some extra impact.
A buyer's or seller's market?
So, if a lack of inventory, and thus the law of supply and demand, set up conditions for a solid seller's market, wouldn't a greater amount of inventory swing the pendulum in the other direction? Well, it can depend. From 2020–2022, there was no doubt that the advantages were firmly on the side of the seller. While we've seen some shifts in the market that favor the buyer in recent days, there is a significant inertia that buyers will have to contend with in the meantime.
If interest rates remain high for an extended period, that might mean that fewer buyers are willing to buy homes. In that case, buyers might become the rare quantity instead of available homes, with fewer prospective homeowners chasing a rising number of homes. It can be surprising how quickly markets can shift given the right stimulus, so it's a fair bet that buyer influence will likely continue to grow as the year progresses.
Bottom line: Buyers, be prepared to face something resembling a seller's market for the first part of the year, but don't give up. Sellers, don't expect the advantages you may have enjoyed a year ago to still be in effect this year. You may find that you are the one who needs to make concessions for the sale to go through.
Why are the waters so muddy when it comes to predicting how 2023 will unfold? There are many factors that affect the clarity of an outlook, and many of them have the potential to directly affect the economy, which in turn affects everything else.
What happens with inflation is probably the single biggest wildcard of the bunch, but there's also the continued war in Ukraine as well as the rising tensions between the United States and China — the results of which could have many lasting economic repercussions.
If that weren't enough, there's the ongoing fear of a recession. Many companies are posting large rounds of layoffs for their workforce, yet this is contrasted, rather ironically, with one of the best job reports in decades. These kinds of seemingly contradictory signs can seed confusion, and when there's confusion, there's caution surrounding any sort of long-term financial obligations.
Bottom line: The things that can have an impact on the housing market are varied and largely interrelated. Whether the economy ultimately expands or contracts, owning a home is still a way to build both equity and generational wealth, which historically weather the back-and-forth of economic rise and fall.
Back to the office (maybe)
Just as the need to work from home moved the needle of the housing industry at the beginning of the pandemic, the trend of returning to the office is likely to have a similar effect. When commute times were not a concern, homebuyers could easily look far outside their urban sphere to find a suitable property, sometimes even outside their state or time zone.
Now, many companies are requiring employees to come back into the office full- or part-time. Commuting even twice a week can still put employees in a bind if they now find themselves much farther away than they were when work from home first became an option. Also, the larger houses buyers may have gained during the pandemic may wind up becoming less feasible to maintain with a shift back to the office.
Bottom line: While we may see a move towards living closer to jobs, working from home is not fully going away. So, we're unlikely to see a full return to the pre-pandemic home/work relationship, though it could open up some available inventory as those who are pulled back to the office reverse course from where they were two years ago.
It's clear that the factors that galvanized the housing market back in early 2020 are clearly waning — but they haven't gone away, not entirely. There are still vestiges of those conditions that buyers should be aware of as they start their journey.
That said, the housing market is far from a monolith, and often the reality of it is determined by local conditions as much as overarching pressures. After all, the housing markets in Seattle, New York and Hawaii will always be different than those in Florida, Texas and Kansas. Always look closely at where you intend to hang your hat, and the conditions that are prevalent there, regardless of what headlines you see in the news or what the national averages might be.
Above all, don't be discouraged. In fact, there's ample reason to think that some advantages that buyers haven't had in recent years are (slowly) making a comeback. If anything, 2023 looks like it's shaping up to be a year of change, and with change comes opportunity. If this is the year that you want to become a homeowner, don't let anything stand in your way.
* National average rates accurate as of 02/21/23 from www.freddiemac.com/pmms and are not advertised rates from Proper Rate.
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