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Buyer demand held steady in 2022 even as mortgage rates rose, making homeownership less affordable. And so far, buyer demand has remained fairly strong in 2023.
Because 2022 buyers faced a double whammy of high borrowing rates and home prices, many missed the boat on purchasing a home last year. But are things any better in 2023? Here's why 2023 potentially is -- and isn't -- a good time to buy.
The primary benefit of buying in 2023? To enjoy the benefits of homeownership sooner rather than later.
Owning a home means getting to build equity in a property. That could help you increase your net worth and give you more borrowing options should the need arise.
The combination of persistent buyer demand and low inventory has driven property prices up. There are fewer sellers, so prospective buyers need to contend with higher housing prices.
As such, if you buy a home in 2023, you're likely to pay a premium. And unlike in 2021, you may not get a low mortgage rate to offset that higher price.
In April 2023, the median price of an existing home sold was $388,800, down 1.7% from a year prior, according to the National Association of Realtors (NAR). And since it's still a seller's market in many parts of the country, a lot of buyers may go above the asking price just to get an offer accepted.
Another issue to consider is that housing inventory is very limited. The inventory of available homes as of late April sat at 1.04 million units, per the NAR. That's only a 2.9-month supply of homes. It usually takes at least a four-month supply of homes for there to be enough inventory to meet buyer demand (and it often takes more like a five- or six-month supply to really equalize the housing market).
In 2022, there was no spring or summertime housing surge. And listings didn't pick up in the fall, either. Meanwhile, there's been no spring surge in 2023.
Until real estate inventory picks up, home prices are likely to remain high. And with mortgage rates being up, home buyers face affordability issues in multiple regards.
Here's a play by play:
We don't know with certainty what's in store for mortgage rates for the rest of 2023. It's possible that rates will hold steady, rise, or fall.
The Federal Reserve implemented multiple interest rate hikes in 2022. And while it doesn't set mortgage rates (or any consumer borrowing rates), its actions tend to influence the cost of borrowing, which is part of the reason why mortgage borrowing got more expensive last year.
Meanwhile, in early February, the Fed raised its benchmark interest rate by 0.25%, and then did the same in late March and early May. We don't know if the Fed will continue to raise interest rates in 2023, and to what extent.
But mortgage rates don't always trend in line with other consumer borrowing rates. Case in point: They started rising rapidly before the Federal Reserve really got aggressive with its rate hikes in 2022. So it's hard to say what the next number of months have in store for mortgage rates.
Home buyers certainly should not expect mortgage rates to drop substantially anytime soon.
Mortgage rates and housing market conditions aren't the only factors to consider in 2023. Whether you should buy a home in 2023 also depends on your personal financial picture.
You're in a strong position to buy a home if you have:
You'll just need to shop around to find the best mortgage lender for you.
But if you're not in such a strong position, it could pay to postpone your home search.
Perhaps you're still spending extra money because of inflation, or you don't have much money set aside for a home purchase. Or maybe you have a lot of debt, or your credit score needs work. You may also be wary of buying a home due to concerns about a potential recession. It could make sense to wait even if home prices come down at some point in 2023, inventory opens up, and mortgage rates somehow start to drop.
Here are a some other questions we've answered:
If you want to uncover more about the best mortgage lenders for low rates and fees, our experts have created a shortlist of the top mortgage companies. Some of our experts have even used these lenders themselves to cut their costs.
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