As we start 2023 and put 2022 to bed for good, many are wondering if this will be a happy year for those in the real estate market. In our LAST BLOG, we recapped what went on in the past 365 days but now we’re looking ahead and previewing whether or not there will be anything new or happy in the year to come!
Interest rates and inflation were the topics of 2022. Those topics caused turmoil and change throughout the real estate market and ended the run of exuberance that was present during the many years prior. Buyer demand shrunk as buying power decreased and costs increased. Inventory remained stagnant again, and as a result, total sales transactions dropped dramatically from the year prior. As previously stated, the run we were on was not designed to last forever and it officially came to an end in 2022.
What will happen with interest rates and inflation in 2023?
There is a hopeful optimism that we will be turning the corner from the peak levels of inflation moving forward. This is a must-have aspect for all, as rising everyday costs for the basic needs of everyday consumers is not a benefit to anyone and can cause a ripple effect that will cripple the economy as a whole, and not just in real estate. Whether or not 2023 ends up being marked as a year of a recession or not largely comes down to what happens with inflation.
Hopeful optimism will also apply to the situation with interest rates, in that we are hopeful that the big news around rising interest rates in 2022 remains a topic for the past year and that the increases do not continue on from here. With that being said, the period of historically low-interest rates is officially over, and we cannot expect that the rates will go down to that level anytime soon again, or ever for that matter.
These “higher” rates are here to stay for the foreseeable future. This will be a frustrating topic if you are expecting mortgage interest rates to come back down into the 3% range. They won’t, and the theme of the 2023 year-in-review blog a year from now will largely depend on whether or not the buyer pool decides to accept these higher rates as the new norm. It is a very safe assumption to not see a significant decrease in interest rates in 2023, and the hope is for rates to remain around the same current 6% range and not go any higher from here. It will be really interesting to see if the demand side of the market accepts this higher cost of borrowing or if the sticker shock from 2022 remains in play and leads to more sitting on the sidelines for buyers.
Will there be more homes to buy in 2023?
One aspect that didn’t have a major change in 2022 was an inventory of homes for sale or lack thereof. There are no signs on the horizon that would lead to an assumption of increased inventory for the real estate market in 2023. Continued lack of inventory and a continuation of reduced demand due to higher rates and inflation will likely result in fewer homes selling overall. 2022 was a historic year for a decrease in the total number of homes sold compared to the year prior. Experts expect 2023 to be more of the same but not as steep of a decline.
What will happen with home prices and values in 2023?
One thing is certain, in that the extreme price appreciation that markets have seen up till 2022 will not continue. It remains debatable as to whether home prices will start to drop dramatically this year because of all the factors described above, or will the continued lack of inventory still favors a seller’s market and not a true shift to a buyer’s market. If you read up on all of these topics, except for the inventory shortage, then it would be a foregone conclusion that prices will start to drop. However, the continued lack of supply is still outnumbered by even a reduced level of demand, making it difficult for pricing to drop significantly at this point.
Overall, 2023 looks to be a year where markets adapt and recover from the effect of all the “new” from the real estate market that occurred in 2022.
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