The real estate market is constantly fluctuating, and there are a variety of factors that can impact the market. In 2023, there are 5 key economic indicators that are likely to affect the real estate market.
Mortgage Rates
One of the most significant factors impacting the real estate market is mortgage rates. When mortgage rates are low, it is easier for buyers to afford a home, which can lead to increased demand and higher prices. Conversely, when mortgage rates are high, it can be more difficult for buyers to afford a home. This can lead to decreased demand and lower prices.
The 30 year fixed average rate is at about 6.5% at the moment. This has caused the housing market to slow down. The reality is that interest rates have normalized. Sellers have come down on price and are more negotiable than they used to be. There are many buyers taking advantage of this time where things are where they are. It’s a perfect time to negotiate a better deal on a house, and refinance later on when rates go down.
Consumer price index
The consumer price index (CPI) is a measure of the average change over time in the prices paid by consumers for a basket of goods and services. A rising CPI can indicate inflation, which can lead to higher mortgage rates and make it more expensive for buyers to afford a home.
CPI has been on a steady decline month to month since June 2022. If this continues, it means that interest rates will likely continue to come down in the coming months – potentially down to around 5% as many experts are predicting. Human psychology says that if we saw a high of 7% 30 year fixed rates in 2022, there may be an influx of buyers back in the market 5%. This means more competition, multiple offer situations and less leverage to negotiate as a buyer.
Home Sales
The number of homes being sold can also impact the real estate market. If there is high demand for homes, it can drive up prices. On the other hand, if there is low demand for homes, it can lead to lower prices.
Home sales were down about 15% year over year in 2022. Home sales in 2023 are expected to go down even more. How this impacts pricing will largely depend on the next indicator (inventory) and mortgage rates.
Inventory
The supply of homes on the market can also impact prices. If there is a high level of inventory, it can lead to lower prices as buyers have more options to choose from. Conversely, if there is a low level of inventory, it can lead to higher prices as buyers may be willing to pay more for a limited selection of homes.
Here’s what we know: inventory remains at historically low levels, about one third of all homeowners have a mortgage interest rate under 4% (this includes those without mortgages), and new construction builders are focusing more on remodeling and rental units like apartment buildings and multi-family housing.
Inventory will likely remain low in the foreseeable future as homeowners hold tight to their low interest rates. This will cause our next indicator (home prices) to remain stable. We’ll go back to a normal market where sellers will list for the usual reasons like career changes, divorce and other common motives.
Home prices
Finally, it’s important to keep an eye on home prices throughout the year. If home prices are rising, it can indicate a strong market and lead to increased demand and vice versa.
Affordability will remain an issue in 2023 as home prices will likely continue to correct, decelerate or stabilize but not crash. Homeowners today have historic levels of equity, foreclosures remain low, lending standards are more strict since 2008, the largest population since the baby boomers are looking for their 1st or 2nd homes in millennials, and also, inventory levels are still low.
In summary, the real estate market in 2023 is likely to be influenced by mortgage rates, the consumer price index, home sales, inventory, and home prices. Understanding these economic indicators can help buyers and sellers make informed decisions about the market and their home.
Message for 2023 Buyers
Right now is an excellent time to negotiate for your next home, keep contingencies, submit lower offers and have the leverage that most buyers didn’t have 2-3 years ago. Remember that it is generally easier and more cost-effective to change the interest rate on a home through refinancing, rather than making physical changes to the structure, floor plan, finishes, or even location of the home. If the home for you is out there and you’re personally ready to buy, don’t wait for the market to get more competitive.
Message for 2023 Sellers
Keep your expectations managed and don’t expect 2021 pricing and leverage. The buyers are out there, albeit price sensitive. Make sure you price your home below market value as the market is changing week to week. If you price at or above market value today, you may risk being overpriced in a matter of weeks. Future pace the market when it comes to pricing and get offers in early. This is the best strategy to sell your home fast and for top dollar instead of chasing the market down with price reductions.