We know that 2022 was a tough year. With a worsening economy and inflation, many borrowers had to pick between spending their hard-earned money on food or mortgage payments. We predict that 2023 won’t be much better overall in terms of homeownership opportunities. All indicators point to another tough year with some bright spots. Read on to learn more:
The Market as We Know It
Homes remain at a median price of nearly $400,000 and rentals at nearly $1,900. Even though prices are expected to decrease by 10% nationwide and as much as 25% in certain markets, the majority of consumers who currently want to become homeowners won’t take the plunge unless necessary until 30-year fixed mortgage rates drop a lot lower than 6.29%.
Homeowners who own their homes entirely or make mortgage payments are less likely to sell until rates improve enough to make it worthwhile. Low- and moderate-income homeowners with devalued underwater homes and high debt-to-income ratios are more likely than in previous years to miss payments and default and less likely to receive refinancing approval.
Every expert in the industry has made a housing market prediction that foreclosures will increase nationwide. They also expect an increase in requests for home equity lines of credit from those homeowners that can still claim 10% or more equity.
Young and low- and moderate-income borrowers will lack affordable access to homeownership. The rental market is expected to open up in many areas after a decrease in rental prices because of newly constructed multi-rental properties. Yet, the homeowner portion of the market is expected to become more closed off except in areas that offer lower-cost housing in remote, less-populated or less-desirable locations.
Remote workers will have the most housing opportunities since most of them can relocate away from high-priced properties in whatever region they call home.
A More In-Depth Analysis
Make no mistake, we haven’t forgotten about the possibility of a recession or other factors influencing the market in sudden, disruptive ways, such as SARS-CoV-2 variants, the conflict in Ukraine or climate change. It’s impossible to make a housing market prediction in any of the below areas without thinking about these adverse factors. These predictions hope for the best but also at times note the potential worst-case scenarios:
- 30-Year Fixed Mortgage Rates Will Remain Stuck: We can’t emphasize enough this housing market prediction. We don’t expect consumer dreams of lower rates to happen in 2023. Inflation and the Federal Reserve’s response to it would have to take a dramatic turn.
- Sales Will Decrease Even as Prices Go Down: We expect a decrease in sales because of homeowners who don’t want to accept less than the value of their homes, current mortgage rates making underwater scenarios more likely and a higher overall cost of living from inflation.
- Few New Constructions Will Emerge: Supply chain and economic woes have made building materials hard to obtain and costly and larger dwellings too expensive to build. We expect reduced residential construction with a shift to smaller homes and multi-rental buildings.
- Rentals Take Over the Market: We believe consumers who can’t afford homeownership will find the lowest rents through homeowners-turned-landlords. More short-term landlords and homeowners, especially retirees, will develop long-term rental plans to lock in at least a year-long income stream to offset a potential recession.