Purchasing a home is one of the biggest financial commitments that you will ever make. In most cases, homebuyers commit to making 360 monthly payments over the life of a mortgage as they work to pay off their home.
When making the decision to buy a home, most buyers like to wait until the market is more favorable for them. Periods of low interest rates, high levels of inventory, and buyer-friendly pricing are all indicators of a buyers’ market. Should you buy a home in 2023? The market has been a bit chaotic lately, but these five reasons indicate that yes, you should.
You May Have More Negotiation Power
Read More »While buyers have held most of the power over the last couple years, many industry experts believe that things are going to shift, even if it’s a slight shift, back towards the buyers. Since interest rates have gone up so much in the last year, there are fewer buyers looking for homes right now. This is great news for buyers.
As a buyer in 2023, you may not have to make as many concessions as you would’ve had to in 2022. Additionally, you may be able to find a motivated seller who is willing to negotiate on his or her price. While the market still favors sellers to a certain degree, it is much more conducive to buyers than it was only a year ago.
Home Prices Are Expected to Drop
Throughout 2022, interest rates soared to some of the highest levels that we had ever seen. Along with that, home prices started dropping. This was because motivated sellers were trying to make it more enticing for potential buyers to purchase their homes. They knew that those mortgage applicants were going to be facing higher interest rates than they had dealt with before. This meant that if they were going to sell their home, they would have to be willing to drop the price, which they did.
While interest rates are expected to return to a normalized level (a concept that we will look at in a moment), most industry experts are still expecting home prices to continue to drop. The biggest debate surrounding the decrease in home prices revolves around how steep those price drops will be.
Fannie Mae, one of the biggest mortgage entities in the world, reports that home prices should drop by around 1.5% in 2023. That isn’t much of a decrease, but there’s always the chance that Fannie Mae’s report is wrong. For instance, Goldman Sachs, one of the most familiar names in the world of finance states that they believe home prices will drop by somewhere between 5% and 10% on average.
More Favorable Mortgage Rates
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In order to understand what has been going on with interest rates, we need to look back to the end of 2019. Obviously, this was the beginning of the COVID-19 pandemic. As businesses across the nation were shutting down and millions of others were downsizing, the economy was in a state of flux. In addition to layoffs, many companies were shifting to work-from-home models, which created even more uncertainty. In order to try to stabilize the economic chaos that was so rampant at the time, policymakers in Washington D.C. bottomed out interest rates. In fact, interest rates at one point were lower than 1%, marking the lowest numbers that we had ever seen.
While this was done in order to motivate people to borrow and spend money, there was no way to leave interest rates at such low levels forever. To do so would completely undermine the economy and land the US in another depression. While policymakers were trying to navigate their way through uncharted waters, they moved to raise interest rates in order to stabilize the economy.
Obviously, in hindsight, it’s easy to say what should have happened, and some opponents of those who made the decisions say that they “overcorrected,” leading to the outrageous interest rates that plagued the real estate market in 2022.
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While there is no way to know exactly how things should have been handled, potential homebuyers should rest in the fact that most mortgage industry experts believe that rates are going to return to a state of normalcy this year. While it’s highly unlikely that we will ever see interest rates lower than 1% like we did in 2019 and 2020 (and that’s actually a good thing), we can safely assume that rates will land somewhere around 3%.
A Shift in Inventory
Every industry relies on the principles of supply and demand. If you go to the grocery store, you may notice that certain brands of the same products cost more than others. This is because there is enough demand for those particular brands to warrant a higher price. In the world of real estate, homes are the inventory, and the price reflects the demand for them. When there’s less inventory, prices are typically higher.
It’s not expected that inventory is going to suddenly jump in the first two quarters of 2023, but for buyers who are willing to wait a bit, many industry insiders believe that there will be an increase in inventory in the third quarter of the year. This increase in inventory will help to drive the prices of available homes down, which is great news for buyers.
More Motivated Sellers
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The term “motivated seller” refers to someone who is willing to negotiate on the price of their property and the conditions that are set forth in the contract. Motivated sellers are often those who are selling their homes because they need to relocate. This can be because of family obligations or a change in employment.
The housing market slowed to a near screeching halt last year, and while that was bad for the economy and obviously bad for sellers, it means that motivated sellers from 2022 are likely even more motivated this year. Many of those sellers inadvertently became real estate investors, as they chose to rent their homes to tenants. Studies indicate that roughly 45% of the homes that were listed in March of 2022 didn’t sell, and that 34% of those homes are now being occupied by renters.
While there are undoubtedly some newfound landlords who are enjoying the income generated by these rental properties, most of those homeowners would prefer to sell the property so they can avoid the monthly mortgage payments, the taxes associated with homeownership, the taxes associated with rental income, and other fees.
If you can find a home that has been on the market for quite some time, which shouldn’t be hard to do at this point, you can likely find a seller who is willing to negotiate. Each month that a home sits on the market, the market value goes down. That means that you should be sure to consider homes that have been listed for sale since 2022 or earlier. Doing so will give you a great deal of leverage in negotiations.
Obviously, you should consider your own financial standings before committing to a long-term mortgage. If you are not in a position to be financially secure following a home purchase, you should certainly wait until you can afford it. However, if you’re in the market for a home, 2023 may be the perfect opportunity for you.
