In 2022, we’re seeing higher inflation and mortgage rates. That’s put the housing market into a bit of a reset. We’re seeing more buyers than before, but they’re more cautious. Prices are rising, but not as rapidly as they were before. It’s still a good time to buy, but you need to be prepared for a changing market.
Amidst the Fed’s efforts to lower inflation this year, mortgage rates more than doubled; an unprecedented occurrence in a single calendar year. This had a domino effect on buyer behavior, the market equilibrium between supply and demand, and eventually home prices. Some buyers and sellers hesitated with their plans and decided to wait until the market looked more stable.
It’s hard to say what the future will bring, but most people are hoping for more stability in the housing market in 2023. In order for that to happen, we’ll need to see the Fed bring inflation down even further and keep it under control. Here’s what some experts are predicting for next year.
What Will Mortgage Rates Look Like in 2023?
As we move into the future, inflation will continue to be a major factor in mortgage rates. If inflation is high, mortgage rates will follow suit. However, if inflation starts to fall, we may see a decrease in mortgage rates. Even though there are some indications that inflation might start to go down this year, it’s still something we need to keep an eye on in 2023.
All of this data is being taken into consideration by experts when making their mortgage rate predictions for next year. If we average all of the forecasts together, it seems that rates will stabilize somewhat in 2023. It’s difficult to say exactly where they will fall, but most projections place them somewhere between 5.5% and 6.5%.
We could see interest rates go down if inflation continues to fall. That would mean that we’d start the year off at about the same level as we are now. But as Greg McBride, Chief Financial Analyst at Bankrate, explains:
“…mortgage rates could pull back meaningfully next year if inflation pressures ease.“
There may be some volatility in the weeks ahead as rates could fluctuate. If inflation is brought under control, that would have a positive effect on the housing market.
What Will Home Prices Look Like in 2023?
The movement of prices in the housing market is dictated by the laws of supply and demand. When there are more buyers than sellers (or homes), prices will go up. We saw this occur during the pandemic as there were more people interested in buying homes and fewer homes available on the market.
This year, the housing market has cooled off slightly. Home prices have moderated and there is now more housing supply due to lower buyer demand (due to higher mortgage rates). However, this cooling off has been uneven, with the biggest changes occurring in markets that were previously “hot” (i.e., areas where prices were rising very rapidly). So, what do experts think? Will this trend continue?
As the graph below indicates, there is a wide range of opinion among experts regarding home prices in 2023. Some believe prices will appreciate, while others think prices will actually decrease. However, if we take the average of all the forecasts (shown in green), we can get a feel for what 2023 may hold.
It’s likely that we’ll see neither significant growth or decline in home prices nationally in 2023. This is according to Lawrence Yun, Chief Economist at the National Association of Realtors (NAR).
After a big boom over the past two years, there will essentially be no change nationally…Half og the country may experience small price gains, while the other half may see slight price declines.”
What we say…
The 2023 housing market is going to be defined by mortgage rates, and rates will be determined by what happens with inflation. The best way to keep a pulse on what experts are projecting for next year is to lean on a trusted real estate advisor. Let’s connect.
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