Are You Prepared for the Housing Market in 2023?

After a historic year in 2021 for buyers that continued into early 2022, shifting to benefit sellers, the market is cooling off as the year comes to a close. Does that mean home buyers could see improved pricing? Or will prices remain high, keeping doors closed to first-time buyers? 2023 is a new year, and the predictions only show minimal optimism.

Leveling Off the Economy

The Fed is still planning to hike interest rates in a play to offset the growing inflation before we hit a point of no return. So many are feeling the pinch economically, which won't change anytime soon. But it would be worse if we kept going the way we are. Because of this, Goldman Sachs believes there will be a downturn in the housing market. While certain regions could see a slight bump where they have growing employment rates, according to some experts, it would only be a little. The average rates have nearly doubled from 2021 to 2022 on 30-year fixed mortgages, and the continued jump in housing prices these last 3 years has done the market little favors. But even if interest rates decline and prices level off, that doesn't mean anything incredible compared to 2021 and 2022, as Jacob Channel of LendingTree says. That means homes won't suddenly be more affordable, just back to some semblance of "normal."

Supply and Demand

Another major contributor to 2023's projected ebb and flow is the availability of homes on the market. One thing nearly every expert agrees on is the apparent housing deficit, and the demand for new construction of both single and multi-family homes is high. We've seen a steep decline these last quarters, which drives up prices. There have been buyer's and seller's markets these past years, but 2023 is shaping up to be a "nobody's market," according to Realtor.com's chief economist Danielle Hale. However, plans to construct new housing opportunities could tip the scales in favor of buyers. CEO of the National Apartment Association, Bob Pinnegar, projects that supply chain issues are diminishing enough to help build the much-needed housing that could ease pressure on the market. However, that same supply chain is still backed up for other goods and services, adding to the price gouging for prospective home buyers, which may mean nothing to them in the end. Either way, projecting an increase in available new homes is all well and good, but it won't mean anything as interest and mortgage rates remain high, keeping buyers away.

Is Renting a Permanent or Temporary Solution?

The rental market was seeing some big pricing bumps as landlords worked to recover losses due to the pandemic. Seeing as Goldman Sachs predicts a 22% decline in the sale of new homes, first-time buyers will need somewhere to live, which means renting. As people remain enmeshed in the rental market, a predicted 6.3% increase in the median rent would result. However, as the housing supply replenishes, those rental rates could decrease, according to Doug Bibby, National Multifamily Housing Council president. But like Bob Pinnegar, he is also concerned the lawmakers aren't prioritizing policies that favor renters. Beneficial policy reform will be the greatest boon to renters in 2023 and beyond, which can provide tangible solutions to pricing issues in the renter and buyer markets.

With the market cooling, homes are staying on the market longer. That is driving prices down somewhat, but unfortunately, those options are in short supply. Because there are so few new homes available, prices will, in turn, drive up. That means 2023 could be the first year we see anything resembling a "normal" market, with neither buyers nor sellers benefiting for long and rates all around leveling off to look more like pre-pandemic numbers. Unfortunately, that also means first-time buyers aren't going to find any steals in 2023. Nor will sellers be making off like bandits, either. In the meantime, existing owners could attract prospective buyers and accrue sizable equity. Still, with inflation the way it is, people need more disposable income, leaving the market in a catch-22 scenario. Experts are showing little optimism about what 2023 offers, remaining in a holding pattern until Q2 before cementing their decisions.