The last three years haven’t been a cakewalk for the real estate market. People of all ages have likely been frightened by the activity. Whether you’re a retiree whether your money would be better suited for a fixed annuity rather than a real estate investment, or you’re a young person wondering if it’s the right time to test the water, you’re wondering whether the real estate market will be safe in 2023.
In 2023, one of the most important factors to consider will be the broader economy. Whether inflation will slow or a recession will occur leaves substantial room for doubt and fear. These are the types of questions every real estate investor asks themselves. Even the experts will tell you they are nervous and can’t provide a definitive answer. There’s hope though, and we may manage to avoid a deep recession.
We’ve gone back and forth from aggressive bull markets during COVID, to bear markets and supply line shortages. We’re moving away to less volatile times and that’s good news. But we might not be out of the storm yet. In this article, we’ll present five influencing factors to watch for in 2023 that could impact whether this year is challenging in the real estate market.
Whether you’re looking for your next Sedona rental property or your first home, there’s something in here for everyone.
Home Sales Will Likely Decrease
2020 and 2021 featured record-low interest rates. However, this paired with low inventories and a high number of bidding wars produced a strange chemical reaction. This year saw mortgage rates skyrocket and rising monthly payments and less buying power have put the market on alert.
The slowdown began in February 2022 and should continue into 2023 and buyers will contend with comparatively high mortgage rates, low inventory, and high home prices. Sales are also likely to remain slow into the spring. The only question with 2023 is likely how hard the slowdown will hit certain areas.
The factors still up in the air regarding what will happen to mortgages are the mortgage rates, housing supply, and overall economic conditions. If inflation drops and the Federal Reserve slows interest rate increases, homeowners might feel the market adjust back to a more comfortable state.
Other factors will affect the severity of the market shift, such as the strength of the job market, wage growth, and consumer confidence.
Mortgage Rates Will Likely Settle
After a 20-year high of 7.08 % in early November, mortgage rates trended downward in recent weeks. High mortgage rates combined with high home prices have made home prices difficult and much less affordable.
Most believe mortgage rates will remain relatively high but peak in the mid-year and stabilize. Others believe we have already hit the peak and will see more manageable rates in the middle of the year. You shouldn’t expect these rates to fall to those seen during the pandemic (around 3%) but the conditions are expected to be much more manageable.
Home Prices Will Level
Whether home prices will fall in 2023 is under contention between experts. Some see a 4-5% decrease forthcoming but the only certainty is that there shouldn’t be double-digit price increases as were the staple of the pandemic market. Most experts still see prices falling in 2023. Low inventory should keep prices from falling too far and there is much sentiment that prices could go higher than in previous months.
Inventory Will Remain Limited
One of the most pressing reasons for higher home prices during the pandemic has been a lack of supply. We should see an increase in supply next year as supply chain costs level off and the building can continue to recover. However, inventory will remain lower than in previous years.
Sales have slowed since sellers made deals in a week or less. The time spent on the market could double in 2023, which would also build supply. As 2023 progresses, buyers and sellers could strike a balance, especially if mortgage rates drop. If this happens, you would likely see an influx of buyers, which would also increase sellers. However, even if supply improves, the number of homes will remain below pre-pandemic levels.
There Will be More Variability Between Markets
Real estate markets were in high demand across the board in the first few months of 2022. That won’t be the case going into 2023 as markets will vary widely across regions. Cities that attracted an influx of pandemic buyers, otherwise known as “Zoom Towns,” will likely see some decrease in demand in 2023. They will also see prices fall. However, markets in the Midwest and South will likely remain steady.
A Slightly Unpredictable Year
At the start of 2022, real estate markets were booming all over the world. Limited supply, huge demand, and high prices created a healthy market. 2023 has changed that dynamic considerably. With central banks raising interest rates last spring, buyers and sellers have been put on high alert.
The markets came back to earth in 2022 as a result of the prolonged low-interest rates. Inflation forced the Fed’s hand and high-interest rates affected the market significantly. The Fed’s pandemic policy created feverish demand for housing and now that fever has broken, which spells tough times for housing hopefuls.
This all comes in the midst of alarm bells ringing “recession.” However, many experts believe if the recession comes, it will be a light one. This is because of the strong labor market. Other cities, such as London and Sydney face similar issues. However, cities that saw a recent influx of people pre-pandemic likely won’t experience as severe of a drop-off.
Bottom Line
All of this goes to say that we will likely see some corrective forces in 2023. With fears of an upcoming recession, it’s somewhat of a “wait and see” game for home buyers and sellers. However, buying a home is just as much a personal choice as it is influenced by the market.
If you feel like now is the right time to buy your home, you might feel pressured not to buy because of the market. But choosing to buy a home is more about where you are in life and where your finances are rather than the market conditions.