What Will the Housing Market Look Like in 2023?
If you’re a first-time home buyer considering buying a house in Spokane, Washington, you may be worried about what you can expect this year. That’s understandable. National home values rose an unprecedented 45% from December 2019 to June 2022, and you may be wondering if housing prices will continue to climb or whether there may be a dip that you can take advantage of.
While we have no “crystal ball” that can tell us what the future holds, the best way to give yourself an advantage in this competitive market is to stay informed and work with a skilled real estate professional who can explain the trends in the market. Here are some thoughts about how 2023 may look.
Increased Inventory
Realtor.com has released its annual projections for the real estate market. According to their assessment, housing inventories should increase by more than 20% in 2023. With this increase in inventory, houses are more likely to stay on the market a little longer than they were in 2022, which could exert downward pressure on housing prices.
At the same time, this projection does not necessarily translate into every market. Some markets may see steep climbs in available homes, while others see declines or stay at a comparable level. In addition, the general increase says little about the mix of homes that buyers are likely to encounter. The reality is that entry-level homes are nearly always in the highest demand. Consequently, it is not unusual to see that, even in markets with an average decrease in median price, entry-level houses maintain their prices, while higher-end houses show a reduction, as there are fewer buyers for those homes.
So, despite the increase looming on the horizon, you cannot automatically assume a surplus of homes. Inventory will still be lower than pre-pandemic levels, and America will technically remain in a housing shortage, which has persisted for several years. It is anticipated that this shortage will ultimately prevent housing prices from dipping too low – some welcome news for sellers but not so welcome for buyers.
Prices Could Go Either Way
Individuals who want to wait until a steep drop in housing prices may have to keep biding their time, but even the waiting game can be risky.
While experts at Morgan Stanley have predicted a decrease of approximately 10% in housing prices from summer 2022 to 2024, Realtor.com, in contrast, predicts a price appreciation of 5.4% during 2023. While a 10% is significant, a typical housing market crash would consist of price decreases of at least 20%. If instead, Realtor.com’s forecast proves accurate, a 5% or more price increase would be significantly lower than the increase experienced during 2022. So what does this mean? It means that the economy is in new territory regarding housing, making predictions very speculative. It also means that you need to consider carefully what your position will be should either of these scenarios come to pass.
If you’re shopping for your first home, you may be hoping for the cooling promised by Morgan Stanley. However, even if the alternative prediction comes to pass, take heart in the knowledge that house prices won’t be climbing as quickly as they have been. Remember, also, that we are in the middle of a recession, in which inflation in 2022 averaged 6.5%. That means the dollar is losing purchasing power, including the dollars you may have saved up for a down payment. In an inflationary economy, the dollars you spend now can buy more than the same dollars one year from now. If you can sustain a down payment and a house payment now and are confident in your employment, don’t let your uncertainty about the economy stop you from purchasing a home.
Elevated Interest Rates Equals Diminished Purchasing Power
Unfortunately, another financial factor you need to consider is the cost of the money you borrow – that is, mortgage rates. A few years ago, home-buyers could finance a home at around 3%. Today, that number is more than 7%. That rate is not expected to change significantly in the near term.
While no one wants to pay a high mortgage rate, don’t base your decision solely on the current rate. If rates go down in a few years, you can refinance your loan. In addition, remember that inflation can benefit a borrower if your income increases while your payments remain static: as your income rises, your house payment will consume a smaller percentage of your income. Inflation also usually means that your house value increases. If so, as you pay down your loan, your equity increases despite the high interest you are paying, and you are still gaining in your overall financial position.
At the same time, higher interest rates mean that your house payments will be higher, which translates directly into how much house you can afford. For example, a $300,000 loan at a 7% fixed rate over 30 years will cost $1996 per month but only $1799 per month at 6%. That’s almost a $200 per month difference. Since your loan will be based on what you can afford as a monthly payment, if you can only manage a payment of $1799 and rates are 7%, you will have to look for a loan of about $270,000. This 10% decrease in purchasing power for every 1% increase in interest means that higher interest rates will force you to set your sights on houses in a lower price bracket.
Work With Real Estate Professionals in Spokane, Washington
It would be nice if we could accurately predict the market, particularly concerning something as momentous as buying a home. While it is depressing not to be able to take advantage of an ideal housing market, you can take comfort in the fact that the current economic climate indicates that we are not in the midst of a housing bubble. In other words, you can be confident that you won’t be paying an inflated price for your home in 2023.
Given this fact, the real question is whether you are in a good financial position to purchase a home and have the right frame of mind to buy a home. Financially, home ownership is generally a smart move, and so long as you do not overextend yourself, it is a wise move long-term. More than that, purchasing your own home is about laying down roots and transforming a house into your personal refuge. If buying a home in 2023 is right for you, pursue that dream. You’ll know when the right deal presents itself.
If you are ready, work with a skilled and experienced real estate agent. With the Legacy Group, you can be confident that your agent will provide the insight you need to navigate the Spokane real estate market successfully and find the best value for your money. The process of buying your first house doesn’t have to be stressful when you have the right agent on your side. Contact Legacy Group Real Estate and make 2023 the year you buy your first home.