It’s been a tough year for home buyers. Will things settle down next year?
- Home buyers have been plagued by sky-high prices and limited inventory this year.
- Things could change for the better come 2023, but it won’t all be smooth sailing.
It’s fair to say that 2022 has been a difficult year to buy a home. We started off the year with housing inventory at an almost ridiculously low. And while real estate inventory has picked up in recent months, we still don’t have enough housing supply to meet buyer demand. That means sellers are continuing to get away with commanding sky-high prices for their homes. And at a time when higher mortgage rates are making borrowing more expensive, that’s not a good thing.
But as rough as it’s been for potential home buyers this year, things could take a turn for the better in 2023. Although buyers might still face some challenges, they might benefit tremendously from having more real estate inventory to choose from.
Why housing inventory is likely to increase
We can’t say with certainty that real estate inventory will increase in 2023. But there’s reason to believe it will.
First of all, the supply of available homes has increased steadily over the summer. Second, it’s not exactly news that many economic experts fear a recession may be imminent. Sellers are likely to want to get ahead of that by putting their homes up on the market before economic conditions worsen and buyers are forced to put their plans on hold.
During a recession, unemployment can increase. And it’s hard to qualify for a mortgage in the absence of a job. So sellers who are serious about listing their homes are likely to do so before the economy takes a dive.
Also, a lot of people held off on listing homes in 2020 and 2021 due to pandemic-related fears. At this point, many people are less focused on those issues, and as those concerns continue to ease, housing inventory should pick up.
Meanwhile, once more homes hit the market, sellers will have more competition. And so they’ll have to start pricing their homes more strategically in order to draw in buyers. Plus, once more homes hit the market, bidding wars should grow even less common. And that’s a great way for buyers to avoid getting stuck overpaying for a home.
But one challenge remains
While there’s a good chance housing inventory will increase in 2023, borrowing rates might follow suit, or otherwise hold steady at today’s higher levels. Historically speaking, this isn’t the highest mortgage rates have been. But compared to last year’s rates, today’s rates look very high. And, frankly, they’re pretty high, even within a historical context.
If mortgage rates stay where they are today, a lot of buyers might have to consider putting their plans on pause or paying a larger down payment when they close on their homes to keep their monthly mortgage costs reasonable. But to be fair, there’s a chance mortgage rate will be lower next year than they are today, so buyers shouldn’t assume the worst.
All told, there’s reason to believe it will be easier to buy a home in 2023 than in 2022. That said, if a recession hits, those impacted by it may have to drop out of the market. But all told, buyers may find that the red-hot housing market they’ve grappled with all year finally starts to cool off in 2023.