Feb 2, 2023
2023’s Housing Market Is Looking Up: 3 Things That Should Give Homebuyers Real Hope
After suffering all-time lows during the COVID-19 pandemic, the supply of homes for sale has rebounded with a bang.
January marked a whopping 65% more real estate listings than this same month a year earlier, according to a recent inventory report from Realtor.com®.
And while home prices are still up year over year, they’ve declined from the pandemic peak. January’s median home list price clocked in at $400,000—holding steady since December but much lower than June’s record high of $449,000.
In addition to this deluge of homes for sale at more reasonable prices, mortgage rates are also down from their 20-year high, which broke 7% in November. For the week ending Jan. 26, Freddie Mac found that rates for a 30-year fixed-rate loan averaged a mere 6.13%.
These three things—lower mortgage rates, stabilizing home prices, and a glut of listings—spell a long overdue opportunity for homebuyers to jump into the market and snag a deal.
“The fact that mortgage rates are down from their November highs means that today’s homebuyers aren’t paying quite as much as they did before,” says Danielle Hale, chief economist of Realtor.com.
Plus, mortgage rates might dip lower still.
“Further declines in inflation are expected at this point, but if they register faster than expected, that could mean a further drop in mortgage rates,” Hale predicts. “This would bring back purchasing power for buyers and help close the current gap between what many sellers hope to sell for and what buyers are willing to pay.”
‘An interesting year’ for real estate?
Yet the unpredictability of what interest rates might do next has many buyers and sellers nervous about forging ahead.
“January data tells us that it’s going to be an interesting year,” says Hale. “Both sellers and buyers are feeling their way out of this market stalemate with a keen eye on the broader economy and interest rates.”
While steadily climbing inventory means buyers can enjoy plenty of homes to shop and a more balanced negotiation with sellers, their affordability challenges persist. Despite the recent dip in interest rates, median mortgage payments are still about $750 higher each month than they were just one year earlier.
Additionally, many potential buyers are facing financial crunches in many aspects of their lives due to stubborn inflation. The net result? Many bottom-line-minded buyers are unable or unwilling to make offers on homes as aggressively as they were a few months ago, if at all.
As a result, many homes are simply sitting on the market an average of 75 days—way longer than the June rush, when listings lingered a mere 32 days before being snapped up.
That’s why inventory is so much higher: It’s not that more homes are going up for sale; rather, the ones that are on the market already aren’t selling as fast.
Why home sellers are hibernating
Meanwhile, many potential sellers are remaining in their homes rather than listing for one simple reason: They’re locked into mortgages with low interest rates they aren’t willing to give up. Sellers might also be hesitant to list properties that will simply sit there growing stale with nary an offer in sight.
And so the increase in listings—which breaks down to 248,000 more homes on any given January day—hides an important caveat: In January, new listings were down 2.8% on a year-over-year basis, following a much steeper year-over-year drop of 21% in December.
Why does this decline in fresh homes for sale matter? Because new listings help drum up demand and attract buyers, many of whom have already checked out (and passed over) listings that have been lingering on the market for months.
“Fresh listings are a new opportunity for buyers because they might mean they will better fit the needs and budget of potential buyers,” says Hale. However, she urges buyers to give those long-in-the-tooth listings another look, since this is where sellers might be desperate enough to lower their price.
“One benefit to buyers of looking at older listings is that their sellers may be more willing to negotiate,” Hale explains. “Sellers of new listings are typically going to want to see how many offers they can attract in a week or more before they consider negotiating with a buyer.”
Where inventory is soaring
Regions in the South and West have taken a beating in the market downturn, with supply far outweighing demand, sometimes by staggering numbers.
Take Nashville, TN, a pandemic darling. Once red-hot Nashville saw its inventory grow by a whopping 304.2 % on a year-over-year basis in January, according to Realtor.com data.
“In December 2021, we had just over 3,600 units available on the market,” says local real estate agent Brian Copeland, of Tennessee’s Doorbell Real Estate. “At the end of December 2022, we had just over 8,200 units.”
Copeland explains that there are several factors at play in the rise in inventory. One is pricing, with some sellers still putting homes on the market for $25,000 over comparable properties.
“Sellers aren’t being as realistic with pricing straight out of the gate,” says Copeland. “When you couple that with higher interest rates, it causes a slowdown.”
Hale agrees with this on-the-ground assessment: “What we see in the data is that while home sellers are more likely than a year ago to reduce their asking price, the majority of home sellers are still not making reductions,” she says.
What will happen to housing in the year ahead?
To get the market moving again, perhaps both buyers and sellers need to budge and make some concessions so they can meet in the middle.
“With macroeconomic conditions continuing to shift and adjust, it’s more important than ever to focus what you can control and on your individual goals,” Hale says. “As a seller, you can’t create more buyers, but you can price appropriately for the buyers that are in the market.”
As for buyers? Don’t forget your negotiating power as the new year gears up rather than letting high listings prices push them past what they can afford.
“As a buyer, you can’t set the market price, but you can determine what you’re comfortable paying, and make the best offer you can on a home that fits your needs and falls within your budget range,” Hale says.
For More: Click Here