It has been a wild few years for the housing market. If you’re thinking about buying or selling this year, you’re probably feeling a bit apprehensive about the process.
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There’s no way to know exactly which challenges you’ll face, but you want to be as prepared as possible. GOBankingRates spoke with several real estate experts to find out what they think the rest of this year’s housing market will look like.
Buyers Will Get Some Leverage
“The market has shifted to a buyer-friendlier market, but sellers still hold a lot of cards,” said Lindsay McLean, co-founder and CEO of HomeLister. “As mortgage rates rise and affordability dips, sellers may have to shift their expectations to match the changing market — and buyers [will] have more leverage.”
Despite that, he said the market would return to a more balanced position than in previous years.
“Buyers are finding they can buy again without waiving contingencies and sellers are starting to offer concessions,” she said. “However, many sellers hold low-interest-rate mortgages and are not under pressure to sell and so may hold out for the offers they want.”
Home Prices Might Decline
The housing market has shifted considerably, but McLean said it’s still hard to say whether this means home prices will decrease this year.
“While prices have dropped from where they were at their peak this time last year, they are still above 2021 prices in many markets,” he said. “Mortgage rates have stabilized a bit and offer activity seems to be summing up, as buyers are slowly coming back to the table.”
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Inventory Will Increase
At present, McLean said active list counts — ie, inventory — are all over the place.
“In some places they are double [last year’s],” she said, “and in some places they are down 25%.”
She said fewer homes were listed during the fall months, but homes that were listed are staying on the market longer. Plus, during this period, he said, more homes than usual were taken off the market.
“We see this as being a relatively fluid market where, as buyer activity picks up, there are quite a lot of homes that are ready to come on the market once mortgage rates have stabilized.”
Some Pandemic-Era Owners Might Face Buyer’s Remorse
During the early part of the COVID-19 pandemic, there was a rush to buy homes — and many buyers paid premiums. However, some likely will begin to regret that decision, said Odest Riley Jr., CEO of WLM Realty and Co., based in Inglewood, California.
“The biggest issue in 2023 will be buyers who are overpaid in 2021 realizing they have no equity and are stuck with a property they may not have really wanted,” he said. “These buyers will be forced to ride out the down market and get back in the game when the economy recovers.”
A Sense of Normalcy Will Return
If you’ve been feeling priced out of the market the past few years, Riley said this is the year that regular, hardworking buyers will be able to get back in the game.
“First-time homebuyers will be welcomed with their FHA loans,” he said, “and sellers will be given a dose of how it feels to not be in control of the whole transaction.”
This would be a major change of pace from the frenzy of the past few years.
“From April 2020 to March 2022, sellers were able to put their properties on the market, kick their feet up and wait for a buyer to beg them to accept an offer,” he said. “That time is long gone.”
He said the last two quarters were filled with sellers being too stubborn to accept price drops and buyers too scared of high interest rates to make offers. However, he predicts 2023 will be a year of corrections.
“Sellers will come back down to reality and buyers will start to realize a 5% interest rate isn’t really that bad,” he said, “opening up the market for regular transactions from FHA, VA and standard conventional loans.”
Rates Will Continue To Increase
If you are hoping rate hikes will stop in 2023, that probably won’t be the case, said Marco Smith, a real estate agent with Long & Foster Real Estate in Maryland. He predicts rates will slowly rise throughout the year.
“Depending on the buyer’s credit, mortgage rates will remain in the mid-6% range,” he said, “later climbing to a maximum of 8% in June or July.”
However, his prediction isn’t all bad news.
“When rates go up, prices go down,” he said. “Because rates are rising slowly, housing prices will drop, but not significantly. This won’t help ease inventory concerns, but should increase sales.”
Smith isn’t quite sure when he expects rates to go down.
“It’s hard to predict mortgage rates with any certainty,” he said, “but I see rates hovering between 6% and 8% for most of the year. By year’s end, we may see rates decrease.”
Buyers Will Warm to Higher Rates
“Over the last 40 years, the average mortgage rate has been 7%,” Smith said. “People will realize we were spoiled with unsustainably low rates and will become less nervous about buying under current interest rates.”
Still not sold? He has a different perspective to consider.
“One way to think about this is: If you were renting, you paid 100% interest rates,” he said. “Once mortgage rates start to become consistent, renters will choose to buy and sellers who are on the fence will finally put their homes on the market.”
Buyers will be choosier
Over the past few years, buyers have been at the best of sellers, squabbling over small amounts of inventory at record-high prices. Steve Halpern, a real estate broker with Compass in New York City, predicts this will go by the wayside in 2023, as quality begins to prevail.
He said buyers would have more time to look and really consider their decisions, so they would be choosy and lean toward homes they felt were well done.
“The largest segment of the opportunity in the market will be in apartments that need renovation,” he said. “Post-COVID, buyers have been afraid of renovating; so, if a buyer is open to it, they will get a much better deal.”
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This article originally appeared on GOBankingRates.com: 2023 Housing Market Correction: Forecast for the Rest of the Year