What Will 2023 Bring?
Posted January 23, 2023 in Real Estate Trends
In early 2022, home prices skyrocketed (again) as we still had a home buying frenzy that was in part being driven by the historically low interest rates and historically low housing inventory. It was a continuation of 2021, and the classic economic story of ‘supply vs demand.’
As 2022 wore on, we saw interest rates climb. Folks that purchased at the beginning of the year were glad they did. By the end of 2022, the market has slowed down as interest rates more than doubled from the end of 2021.
One thing to remember is that Real Estate typically follows a 10 year cycle. Just as 2010, 2011, and 2012 were the transition years for the Great Recession, we are seeing 2020, 2021, and 2022 are the transition years this time. As interest rates have gone up, the home purchase amount that buyers are pre-approved for have gone down. One thing most buyers don’t realize is that they are not pre-approved for a dollar amount. They are pre-approved for a mortgage payment amount. As the interest rates go up, so does the mortgage payment, which means how much home they can afford to buy goes down.
So, when will interest rates drop? In short, rates aren’t going to back down to 3%-4%. Rates will continue to go up. Good news? The housing market has softened. Home buyers can also get help with closing costs and negotiate home prices and repairs. The bad news is that, I think, until home prices adjust to pre-pandemic values, I don’t think we will see even the 5%’s again.
What I do know is that people who buy are still better off than folks who rent. Your mortgage is your mortgage. It is your home, and your equity. Rents are still going up, and will not stop anytime soon as the demand for rentals is still higher than that supply.
If you are waiting for a ‘crash’, the economists don’t see a market crash similar to 2009-2011 happening. The housing market crash was due to 80/20 loans, Adjustable Rate Mortgages, lax credit standards for loans, and a lot of ‘creative’ financing. The government cracked down on all of that after the crash, so the likelihood of a market crash like that again is very slim.
If you are thinking about buying, or selling, a home, and have questions, please reach out. I would be honored to help. It is a changing market, and I am here to help!