2022 was a year of upheaval in real estate. What’s on tap for 2023?
Shakespeare had it right when he said, “I’ll give a thousand furlongs of open sea for an acre of barren ground.”
U.S. homebuyers know exactly where the Bard of Avon was coming from on the real estate front.
In 2022, many buyers were locked out of the price-heavy housing market for most of the year. With inflation and interest rates rising, even the most ardent homebuyers hit the pause button at year-end and opted to wait things out before re-engaging with the residential real estate market.
The good news? Homebuyers and the home sellers who need them to move the market can at least flip the calendar and hope for the best as 2023 begins. In fact, they may have good reason to do so, real estate experts say.
“2023 will be a year of returning to normal for the real estate market,” said Sotheby’s International Realty home realtor Maureen McDermut. “The Federal Reserve has indicated interest rate hikes will slow down, and inflation appears to be tapering off.”
In that scenario, more homeowners can buy some time to do necessary home and property repairs and remodels to sell their homes for top dollar, while more buyers will eventually re-enter the market.
“We won’t see a return to the hyperactive seller’s market of 2021, but normalcy will be achieved within the first few months of the year,” McDermut said.
5 Trends to Track in 2023
While a return to normalcy would provide some much-needed stability to the real estate market, knowing what key trends and factors will emerge in 2023 should help buyers and sellers make better decisions in the new year.
To help that process, real estate experts point to these specific trends that could act as ‘agents of change’ for the U.S. real estate market in 2023.
Mortgage rates may stabilize in 2023. Lower interest rates could lure buyers off the sidelines and prod owners into selling their homes.
“Forecasters predict that mortgage rates may be flat in 2023, and they might even fall,” said NerdWallet home expert Holden Lewis. “We should view these forecasts skeptically because many prognosticators didn’t foresee how rates would skyrocket in 2022. But if rates do stabilize, buyers will feel more secure about their costs, and they might jump back into the housing market.”
Stable rates might encourage homeowners to list their homes for sale, as well.
“Most home sellers would have to give up the low rates they grabbed during the refinancing boom in 2020 and 2021, but they may be willing to slide into a higher interest rate on their next home if the new place satisfies their needs,” Lewis noted.
“Rate lock-in” is a real phenomenon. The majority of people with mortgages have home loans with rates below 4%.
“If rates remain above 6%, a lot of those homeowners will be reluctant to sell their current homes if it means giving up their low rates and paying much higher interest rates on their next homes,” Lewis said. “Some people will sell regardless — to move to a bigger place or to downsize, or to take another job. But a lot of homeowners will keep their homes with low mortgage rates, and invest in home improvement projects instead of moving.”
Sellers will need to budge. Homebuyers will increasingly be in control and sellers will need to rethink their pricing strategies in the new year.
“The buyers I am working with think prices are still too high,” said Compass real estate broker Kimberly Jay. “Many sellers have not lowered their prices enough to meet the buyers’ expectations.”
Other real estate agents agree. “[Sellers are] starting to understand that where they listed six months ago is no longer market value,” said Coldwell Banker Warburg agent Kate Wollman-Mahan.
Rent declines are possible: Rental prices are sky-high, but real estate experts say there’s a good chance they could decline in the coming months.
“The rental market is always the weakest from October through February. We are already seeing prices come down,” Jay said. “I’m hearing that a lot of landlords are not increasing the rent as significantly as before.”
A downturn could mean an opportunity. Where some market mavens see a housing downturn, others see an opportunity.
Some people see the down market “as an opportunity to get a great deal,” said Coldwell Banker Warburg real estate agent Jeremy Kamm. “For cash buyers, or buyers financing 50% or less, this is a moment to try and snag something.”
Rationality on the Table in 2023?
Overall, real estate professionals believe the clouds have lifted and slivers of sunlight are on the horizon for the market in 2023.
“Given the last nearly 2-and-a-half years of price leaps and buyers almost no room for negotiation when buying a house, would-be buyers may sit on the sidelines,” said Berkshire Hathaway Home Services CEO Christy Budnick. “Even people who weren’t looking for a house over the last couple of years but may be in the market now, are approaching home buying with some skepticism.”
