After two years of a highly competitive housing market, many aspiring homebuyers are weary of what to expect in 2023 and asking themselves, “Should I buy a new home this year?”  With sometimes conflicting forecasts of what’s to come, it’s understandable to feel apprehensive that the recent trends may be the new norm.  There are a few factors to consider when deciding if buying a home is the right move for you and your family in this new year.

Will Rates Continue Increasing this Year?

Interest rates rose considerably in 2022 but are still low compared to historical averages.  Freddie Mac economists have seen a recent decline in mortgage application activity as of January 5th, 2023, indicating a decrease in demand. With the easing of inflationary pressures, analysts say this could lead to lower interest rates if current trends continue.

In a recent article, Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors®, also anticipated less volatility in 2023 as mortgage rates have stabilized around 6%.  She also predicted rates may dip below 6% in the coming months.

Will Home Prices Drop?

Buyer demand has consistently exceeded the available homes on the market, causing home prices to soar to an astronomical high in early 2022. 

While the unfavorably higher mortgage rates can deter competing buyers, they can also deter potential sellers who may have locked in lower rates with their current mortgage.  These potential sellers may wait to list their home for sale to avoid subsequently buying again at the current higher rate.  This may further limit the available inventory of homes.  

If interest rates decrease as forecasted, a large demographic of millennial renters are likely waiting to enter the housing market to also boost demand.  Increasing purchasing power and home affordability may remain a challenge in this market, according to economists at Fannie Mae.  The resulting tension from this stalemate can contribute to a continued decline in home sales in general but may not proportionally lower home prices.

Evaluate Your Current Financial Position

Regardless of the current real estate market, buying a house is typically the largest, most significant financial commitment you can make in your lifetime.  Mortgages are commonly a 15 to 30 year commitment, while closing costs and a down payment can be considerable initial financial burdens. Evaluating your current financial situation and lifestyle will always be a critical component to consider when it comes to determining readiness of any major purchases.  Some important questions to ask yourself include: 

  • Do you currently have a stable job or income? You should ensure you have a steady income while also maintaining an emergency fund to cover at least three months of your mortgage and living expenses in case of an unexpected job loss.
  • Is your other debt under control and is there anything you can do to improve your credit score? Lowering other debt and improving your credit score will help you receive better available interest rates, leading to lower monthly mortgage payments.
  • Do you have enough money saved for a down payment? Keep in mind, lenders may require PMI insurance if you do not provide at least a 20% down payment. 
  • Are you prepared to be responsible for any unforeseen emergency repair costs? Unlike renting, homeowners can’t call a landlord and will be responsible for any repairs that may be needed, such as from a plumber or an electrician.
  • Have you incorporated the potential recurring costs associated with homeownership into your budget, such as homeowner’s insurance, property taxes, utilities, maintenance, and HOA fees?

Ask a Professional in Your Area

Economists’ predictions concentrate mostly on nationwide trends, while trends in your area may differ.  Different states, regions, and cities vary greatly in condition of their job market, cost of living, taxes, and home prices.  Reach out to local real estate agents who can give personal attention to not only your specific needs, but also provide expertise and insight regarding the local real estate market and trends to maximize your purchasing power.