Despite the economic headwinds that continue swirling, there is still opportunity in real estate.
2022 is often remembered as a year filled with housing volatility. However, 2023 offers the chance for some normalcy and a return to the market. As home sales and prices decrease, mortgage rates are expected to stabilize. This will allow many Americans to enter the housing market that was previously untapped.
Agents who are familiar with the economic environment in their markets will be able to best advise clients, facilitate transactions and create value for buyers and sellers.
Stock shortages will continue
First, the persistent inventory shortages that we have seen in recent years across the country will continue. We are currently 3 to 6 million housing units short of what we need (rental and for purchase), with the housing market still not fully recovering from the Great Recession.
This is combined with labor and material shortages that have become almost universal in the post-Covid era, and disruption in markets has become the norm. The United States must add approximately 5.5 million single-family or multifamily units over the next few years to keep pace with both demand and population growth. We will see prices rise even more if we don’t.
Rates will stabilize
Potential buyers are also hesitant to buy due to recent sharp fluctuations in mortgage interest rates. Although rates are still higher than they were one year ago, they will likely stabilize below 6 percent in 2023 if inflation slows down.
Fixed-rate loans are more appealing to first-time buyers than adjustable-rate mortgages. These buyers are also more likely to stay in their homes for a shorter time.
Inflation creates uncertainty
As it has done throughout the economy, inflation continues creating uncertainty in potential buyers’ minds. In 2017, buyers bought their homes for 98% of the asking price. 28% of homes sold for more than they asked for. It’s a smart idea to advise first-time buyers to lower the price of their home search in today’s market to avoid going over budget.
Despite the fact that 2022 saw a decline in first-time buyers due to affordability issues for many, NAR recommends members continue to inform clients about the government-sponsored programs in their area.
A strong relationship between an agent and several lenders will allow them to offer consumers options that will help them find the best mortgage terms for them and make the most of their arrangement.
After years of turmoil, it is good to see a normal housing market returning after all the turmoil. Agents who can help buyers and sellers navigate the changing market are invaluable. It is impossible to predict the future direction of the economy or global marketplaces. However, there are many valuable resources and information available that can help consumers make informed decisions and ensure they have the best possible understanding of the market.
Lawrence Yun is the Chief Economist for the National Association of Realtors.