2022 has been a tough year for homebuyers. does it get better?

(Nerd Wallet) – The 2020s have mistreated homebuyers. 2023 could be a tipping point for the housing market to have its fair share of influence. Here are the real estate trends to watch next year.

reason for optimism

The outlook for homebuyers has been brighter since the pandemic began.

“There are a few things buyers should look forward to in 2023,” said Daniel Hale, chief economist at Realtor.com in his housing forecast. It will likely take some time and buyers will not face the extreme competition that has become commonplace in the last few years.”

Matthew Speakman, senior economist at Zillow, said competition has plummeted, with bargaining power flowing from sellers to buyers. “This often means that buyers don’t have to compromise on the first winning home, and inspection and financial contingencies are back on the table,” he said in an email.

Even if buyers have more bargaining power than in 2021, “it will still be a seller’s market,” said Lisa Sturtevant, chief economist at Bright MLS, which offers multiple listing services in mid-Atlantic states. No.” I warn you. It’s important for buyers to secure pre-approval for mortgages before making an offer, she said.

Builders cut prices, rate buy downHere’s why. Builders faced more and more cancellations in 2022 as mortgage rates rose dramatically while homes were being built. By then, interest rates had risen beyond affordability.

Mortgage rates may stay flat or fall

This year, the Federal Reserve has raised the federal funds rate by 4.25 percentage points to curb inflation. mortgage interest rate 30-year mortgages averaged 3.21% in the first week of January, peaked at over 7% in October and November, and fell to 6.34% in the second week of December.

Home sales plummeted as these high mortgage rates sidelined many would-be buyers and left fewer people available. Some forecasters believe low interest rates could revive homebuying dreams in 2023.

Fannie Mae, Freddie Mac, and the National Association of Realtors all predict a gradual decline in mortgage rates in 2023, averaging 6.1% to 6.5% for 30-year mortgages in the fourth quarter.

The Mortgage Bankers Association forecasts a sharper decline in the fourth quarter of 2023, with average 30-year mortgages averaging 5.2%.

Be skeptical of these predictions. These forecasters were well off target a year ago when he predicted average interest rates on 30-year mortgages would rise from 5% to 5.3% in the fourth quarter of 2022. A corresponding rise in mortgage interest rates.

No clear price trend yet

House prices, unlike mortgage interest rates, are difficult to predict because they fluctuate significantly by location and season. For simplicity’s sake, let’s look at a national forecast that predicts what will happen to house prices from the end of 2022 to the end of 2023.

Meanwhile, Realtor.com expects median home prices to rise 5.4%. The National Association of Realtors forecasts a price increase of 2.5% for him.

Bright MLS’s Sturtevant forecasts a 0.3% increase in prices. She believes that as interest rates stabilize, we will see a rise in demand from “people who were taking a wait-and-see approach at the end of 2022 coming back into the market next year.” compete for the supply of homes for sale that have been sold and set a floor on prices.

Meanwhile, John Burns Real Estate Consulting expects home prices to fall 20% to 22% from their spring 2022 peak, while real estate consulting firm Zonda expects them to fall 15% from their peak. These companies do not expect all declines to occur in 2023. Prices may fall until he 2024.

Rick Palacios Jr., director of research at John Burns, noted in a podcast interview that median existing home prices rose about 40% from spring 2020 to spring 2022. After such a sharp price increase.

“We’ve narrowed the 10-year rise in house prices to two years,” Palacios said on the Altos Research podcast “Top of Mind.”

“Rate lock-in” puts pressure on inventories

About 75% of outstanding mortgages have interest rates below 4%, Sturtevant said. It takes “a lot of temptation” for these owners to sell their homes and switch their low-rate mortgages to his 6%-plus-rate mortgages. In real estate terminology, this phenomenon is called “rate lock-in”, which has at least two notable effects.

First, it contributes to a “significant reduction in existing homes entering the market as inventory for sale,” said Zillow’s Speakman. As people move their homes off the market, the supply of homes for sale decreases. If demand remains the same, house prices will resist falling.

Second, homeowners may want to become landlords, wrote Taylor Marr, Redfin’s deputy chief economist in Realtor’s 2023 Forecast. “Many homeowners will rent out their homes rather than sell them because they don’t want to lose out on low interest rates. There will be an influx of single-family homes for rent,” he predicted.

What makes sellers successful

Most prospective sellers face interest rate lock-in and have to give up exchanging low-rate mortgages for higher-rate loans. That’s not the only psychological hurdle that successful sellers jump over.

“Sellers in this environment will need to recalibrate their expectations and meet buyers where they are if they want to sell quickly,” said Speakman. “Gone are the days when sellers could ask for a price on just about anything and sell in days, if not hours. , and still bring significant returns to their assets.”

Sturtevant says it’s important to price homes “for this market, not for last year’s market.” Buyers are making offers based on recent sales and may be lower than spring or summer 2022 prices.

Realtor.com’s Hale said in his forecast that sellers are already open to contingencies such as appraisals, financing and inspections and are willing to pay buyers. closing costs Compromise on closing timing.

And the buyer insists that the seller surrender the house in good condition. “Notably, recent sellers were more likely to report repairs before listing and were also more likely to perform or pay for repairs during the term of the contract,” Hale wrote. increase. “In short, buyers’ budgets are being stretched to the max, and sellers who understand this and help buyers get ready-to-move-in homes have an edge.”

Finally, Jerimiah Taylor, vice president of real estate and mortgage services at real estate marketplace OJO Labs, advises buying when you’re ready to buy, rather than waiting for prices to drop to cycle lows. is recommended.

“Ultimately, the biggest mistake potential homebuyers make is waiting for the market and trying to time it,” he says. In the process, price peaks and troughs become less visible, he says.