What, exactly, is the 2023 housing market going to look like? It’s a difficult question to answer. Some may envision 2023 shaping up to follow in the footsteps of the 2008 subprime mortgage crisis with a possible bubble or crash.
The majority of housing predictions, however, don’t believe we’re in for a huge housing disaster. GOBankingRates spoke to real estate professionals for their take on what’s to come with the 2023 housing market. Here’s what they predict could happen next.
Interest Rates Could Reach 9%
Interest rates will rise as we fight back inflation, said Melissa Dorman, broker at Living Room Realty. Historically speaking, Dorman said a 9% interest rate is not out of the realm of possibility in the 2023 housing market.
If you feel nervous at the thought of 9% interest, try not to panic. There’s not an expectation that homes will sell at outrageous percentages, like 25% over the list price, anymore, said Kim Parmon, principal broker at Living Room Realty.
“If rates continue to rise in earnest I expect we will see both low supply and lower demand, which will likely create a relatively flat market,” Parmon said.
Interest rates, Dorman predicts, are anticipated to come down once we enter a recession. Buyers brave enough to buy now will be able to refinance their homes at a lower interest rate. As interest rates fall, likely in 2023, buyers will return to the market again.
Buyers Remain Cautious but Fortune Favors the Bold
Based on birth rates, a steady influx of new buyers in their early 30s will be in the housing market each year. Despite these birth rates, Parmon said buyer demand is down. The interest rates have risen and as a result, buyers are not rushing to purchase homes.
“I am seeing buyers be extremely cautious as they navigate purchasing right now. They are fearful that prices may come down in the future,” Parmon said. “Some buyers are choosing to sit out and watch the market and see what happens moving forward.”
However, it isn’t always possible to time any market. When Parmon has seen previous buyer behavior like this, the result has been buyers watch until they realize prices haven’t dipped. Then everyone enters the market at the same time again, creating more bidding wars and price increases with the existing low inventory.
Buyers may certainly be cautious about making a purchase, but some may not be content to sit on the sidelines for another year. The adage “fortune favors the bold” could be the new mantra for those brave enough to buy.
As mentioned earlier, interest rates are anticipated to come down once we enter a recession and allow buyers to refinance at a lower rate. If you’re brave enough to buy now, Dorman said buyers will benefit from a greater inventory, less competition and the ability to negotiate repairs with sellers.
“I think it is a good time to be a buyer. Sellers are having to make more concessions to find the right buyer. There is a larger inventory of homes available,” Dorman said. “The trade-off is the high interest rate.”
Strong Spring 2023 Market Ahead
Parmon, who is based out of Portland, Oregon, predicts buyers will wake up as early as Jan. 2, 2023, and decide to go home shopping. Generally, Parmon said she sees multiple offer scenarios earlier in the year. This levels out approaching the summer months when inventory increases.
Dorman also agrees early 2023 is likely to see a stronger spring market than the fall market. Prices may stagnant or fall in some markets, but the shifts should be nothing like what we have seen in the late spring and early summer of 2022.
“I think the market will balance out and have a slow ramp up as interest rates lower in late 2023 or even early 2024,” Dorman said. “Of course this is all a prediction and I don’t have a crystal ball to foresee the future. This is simply an educated guess based on what I see in the market today.”
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