Is Real Estate Market Slowing Down in 2023?
December 18, 2022
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If there's one thing most people didn't predict coming out of the pandemic, it was the volatile real estate market. It's no surprise that the market shut down for a few months when the pandemic began, and everyone determined how to proceed safely. Still, even the experts didn't see the extreme volatility the housing market would experience after that.
So what's happening to rebalance the real estate housing market, and what has the Fed done to keep home shoppers capable of affording homes? Keep reading to learn more.
Hot vs. Cold Market
Housing market trends have always changed. They've been hot and cold depending on what's happening in the economy and financial markets. What we saw the last couple of years, though, were extremely hot and cold markets.
Here's what they mean.
A hot market is what we saw late in 2021 into 2022. Housing prices skyrocketed beyond their values, and buyers still went through with the sales. You can think of a hot market as a seller's market because there are more buyers than sellers, so there's a lot of competition for the same homes.
Buyers often get into bidding wars, driving home prices up. In a hot market, prospective buyers must offer the highest offer and other favorable contract terms, or sellers will turn to another buyer.
A cold market means there are more sellers than buyers. In a cold market, there is a drop in prospective buyers, leaving sellers without many bids on their homes. Buyers have the upper hand in a cold market because sellers won't have as many people knocking on their doors. When home sales are down, buyers often pay lower prices for a home.
Factors That Affect Real Estate Prices
With the volatility of housing prices in 2022, it's essential to understand what factors affect the real estate market and its prices.
Mortgage rates were just about as volatile as housing market prices this year. With rates dropping to historic lows last year to increasing significantly this year, it's essential to see how they affect real estate prices.
When mortgage rates are low, housing affordability rises. In other words, the less interest you pay, the more money you can afford to borrow. This increases housing prices. But, if interest rates rise, housing affordability decreases, which causes real estate prices to fall.
Occasionally, the government steps in to increase or decrease home sales. For example, in 2009, Congress created a first-time homebuyer's credit to make home-buying more accessible and enticing for first-time buyers.
The tax credit increased demand temporarily, but it wasn't a long-term increase since it was a short-term credit.
Demographics play a significant role in today's market. It controls what properties experience the highest demand, which are no longer sought after, and can set real estate trends for decades.
For example, baby boomers are the most prominent demographic real estate experts are watching. Since most are retired or are nearing retirement, the residential market trends may change for many years. Whether baby boomers downsize, rent, or stay put will determine what happens to the real estate market.
The state of the economy has a significant effect on the housing market trends. When the economy does poorly, or the prediction is that it will, the housing market slows down, but when unemployment rates are down, and the outlook is good, there are usually more home shoppers, which can drive prices up.
Housing Market Forecast
With the housing market volatility, many people wonder what the real estate market predictions will be moving forward. Experts talk about the threat of a recession, yet we haven't seen a drastic change in the real estate market to reflect those sentiments.
Current Real Estate Housing Market Prices
With the national average home listing price for a single-family home at almost half a million dollars, it's getting harder for buyers to afford the higher prices combined with higher mortgage rates, but that hasn't caused home prices to fall yet.
Even with the lower demand, buyers are seeing higher prices, causing them to choose between choosing a smaller/less expensive home or waiting to see what happens.
Housing Market Predictions
Despite all the negative factors putting pressure on home prices, they aren't expected to fall. Rising mortgage rates, inflation, and stable incomes haven't impacted housing prices yet. As a result, home prices may be volatile for the next few quarters, increasing or decreasing slightly, but nothing noteworthy yet.
However, experts agree that the supply of available homes will increase significantly throughout the year. As a result, housing inventory is expected to jump almost 15% this year which is good news for buyers because they will have more options.
When Will the Housing Market Crash
Like what happened in 2008, everyone wants to know when the housing market will crash. With the soaring housing prices and high mortgage rates, it seems inevitable, but experts don't believe it will happen.
They believe there will be a decline in demand that may slightly lower prices, but nothing will cause anything like the real estate crash we saw in 2007 - 2008.
Negative Effects of Recent Real Estate Trends
The recent real estate trends may not be a part of the next housing crash prediction, but they have adverse effects.
Most importantly, the upward pressure on real estate prices makes it nearly impossible for the everyday buyer to afford a home. Between the bidding wars and higher mortgage rates, affordability is at an all-time low. This caused the lowest number of mortgage applications in decades, which is the opposite of what we experienced in 2021.
The home price growth has also caused buyers to pay more than a home is worth. In the heart of 2021, buyers bid as much as possible, waiving any appraisal contingencies to buy a home. This could lead to many homeowners owing more than their home is worth, leading to underwater investments.
The higher mortgage rates we're experiencing also make many buyers and sellers wonder what they should do. It's like a stalemate, with everyone sitting and wondering if they should make a move now or wait until 2023, but with no pause in home price growth expected, it may not be worth waiting.
How the Fed Is Slowing Down the Real Estate Market 2022
With real estate prices out of control, experts turned to the Fed to slow down the real estate market. However, the Fed's real reason for stepping in and raising interest rates was to slow down inflation, which affected more than property prices.
This July marked the Fed's fourth interest rate increase this year. Each time they raise interest rates, they hope to slow spending, which will decrease inflation. So while the Fed increasing rates doesn't directly affect mortgage rates, it usually has a residual effect.
When banks have to pay more to borrow money, they have to raise the rates they charge borrowers, which reduces home affordability. With fewer capable buyers in the market, experts hope it will slow real estate spending, allowing prices to fall and become more affordable again.
With mortgage rates hovering at 5% or higher in the last few months, the housing shortage quickly became a thing of the past. As a result, sellers are sitting on their homes longer, and buyers aren't making rash decisions and paying more for a house than it's worth.
Real Estate News FAQ
Can We Expect Housing Prices to Fall?
Housing prices skyrocketed beyond what many buyers could afford. While the Fed has stepped in to cool things off, they didn't stop home existing home sales altogether. As a result, the real estate market may see slowly declining prices, but potential buyers shouldn't expect drastic changes for the rest of this year and possibly next.
What Is the Median US Home Sale Price?
US homes' median home sales price is still close to half a million dollars. For quarter two, the median price is $440,300.
Will House Prices Continue to Rise, or Are House Prices Dropping?
No one can predict 100% what house prices will do, but for now, they are stable. With demand dropping because of a lack of affordability, you might see a slow drop in prices, but nothing so noteworthy that you'll see bidding wars and risk paying more than a home's value.
What Are Some Tips for Selling in a Hot Housing Market?
To sell your home in a hot housing market, be ready for it to go fast. Buyers are waiting for more homes to hit the market, but to get top dollar for your home, take the time to declutter, depersonalize, and stage your home.
Make it easy for buyers to picture their belongings and family in the home. Before you list your home, check local home prices and price yours accordingly. Don't price too high, but don't price too low either. Work with a reputable real estate agent or home appraiser to ensure you price the home just right for the current real estate market.
Current Housing Market: The Bottom Line
The current housing market is unpredictable. Experts don't believe we'll see a housing crisis, but there could be a decrease in demand while interest rates remain high. The Fed is doing its job in curtailing inflation, but it can only do so much. So before you buy a house, make sure you aren't overpaying and can afford the payment with the higher interest rates for the long term. Learn more by signing up and visiting our blog.
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