Earlier this year, we compiled a 2022 housing market predictions. This list included rising mortgage rates, appreciating home prices, and thriving home sales. In our 2022 housing market review, we explore whether our predictions were accurate.
Real Estate Key Factors
According to the National Association of Realtors, even though mortgage rates and home prices are expected to moderate, home sales may lower due to lack of inventory.
Mortgage Rates Fluxuate
This year, we have seen roller coaster mortgage rates, as the Fed struggles to manage inflation. Though rates increased slightly, they are still down from the 20-year high of 7.08% in the Fall. According to Freddie Mac, the 30-year fixed mortgage rate decreased to 6.27% and as a result, home-ownership is nearly 10% more affordable in the last six weeks. Experts expect that rates will fluctuate between 5-7% throughout the remainder of the year. However, it’s not all doom and gloom.
Home Prices
The good news is, home prices continue to rise. These prices are soaring faster than wage growth. Over the last several years, home prices climbed dramatically for a number of reasons. Bidding wars, sputtering home construction, and hesitant investors contributed to the low supply of available homes, and subsequently, higher prices. In fact, home prices rose steadily in 2022 despite a meteoric rise in mortgage rates. According to rate.com, “At the beginning of the year (2022), when mortgage rates were low and it was a seller’s market with lots bidding wars, median sales price of single-family existing homes was $368,200. In the third quarter of 2022, the median sales price of single-family existing homes increased to $398,500.
Now in 2023, the nation’s overall housing supply remains limited. Many Americans purchased homes at extremely low mortgage rates and thus the market is seeing a dramatic shift. New home construction fell again in December 2022, adding to the longstanding inventory problem. Tight inventory kept prices from substantially dropping off, making homes still unaffordable for many, especially first-time home-buyers.
Housing Market Correction
Still, there are indicators that a housing market correction is underway. After a couple of years of a meteoric rise, home prices seem to be coming down to Earth, albeit slowly.
February 2023 Indications
Low housing inventory is not new. We’ve faced this challenge since the 2008 housing crash when the construction of new homes plummeted. It hasn’t fully recovered—and analysts predict it won’t in 2023, either. In fact, the housing supply remains stuck at near historic lows, consequently sustaining higher home prices. Industry experts have a gloomy outlook on when inventory will actually normalize.
With such high home prices and mortgage rates, many people can’t afford the monthly mortgage payments. Additionally, buyers who purchased homes in all cash had an outsized influence on the market this year, accounting for 35.7% of all sales in the third quarter of 2022.
Should I Buy a Home in 2023?
Buying a house—in any market—is a personal decision. Because homes represent the largest single purchase most people will make in their lifetime, it’s crucial to be in a solid financial position before diving in.
Use a mortgage calculator to estimate your monthly housing costs based on your down payment and interest rate.
Time will only tell what’s in store for the market in 2023. We hope you enjoyed our 2022 housing market review. Happy new year!