The current inflation and high mortgage rates affect our national housing market. Learn how the housing market correction affects buyers and sellers.
KEY TAKEAWAYS
- The housing market correction will affect buyers, investors, and sellers in 2023.
- To fight rising inflation the Federal Reserve raised lending interest rates in 2022.
- Also, the mortgage interest rates increased in 2022 making buying a home less affordable.
- Fewer buyers keep listed homes for sale on the market longer pressuring sellers to lower prices.
- This is a great time for All Cash investors who won’t worry about higher mortgage payments.
- Experts predict home sale prices to fall in 2023 but don’t know by how much.
- That’s why perfect timing is important for home buyers, sellers, and investors in 2023.
How The Housing Market Correction Affects Buyers And Sellers
The rapid housing market in 2021 and early 2022 has slowed down since the Federal Reserve (Fed) raised lending interest rates. As a result, mortgage rates rose to create a housing market correction.
Sellers: Don’t worry! The housing market won’t crash. Yet, rising mortgage rates mean homes listed in 2023 will remain on the market longer. This means sellers wait for the market to adjust back to 2022 prices or lower their sales prices.
Buyers: Likewise, buyers facing higher mortgage rates may choose to wait for rates to drop or buy less costly homes to fit their budgets. Essentially, high mortgage rates are hurting affordability.
Investors must adapt to a nationwide slowdown in sales requiring changing investment strategies.
Tip: Everyone must follow housing forecasts to adjust their plans during the current housing correction. Let’s explore how it impacts the three parties.
Impact on Buyers
Today’s buyers face many challenges in the housing market. Inflation stretched income thin. Rents and prices everywhere are rising and will continue through 2023. Price hikes are making saving difficult. Nationally, a median home price of $455,000 is now unreachable for median-income buyers. At current mortgage rates, median-income households will spend up to 38% on monthly mortgage payments. That’s too much!
Many experts predict home sales prices dropping in 2023:
- Forbes published their 5-year forecast on November 15, 2022. They predicted falling home prices over the next 12 to 18 months;
- Goldman Sachs projected U.S. home prices falling from 5% to 10% over the next year; and
- Bankrate predicted what the housing market will do in 2023, It includes California home prices falling by 10% in 2023 because “it’s so expensive” in 2022.
Yet, they are predictions and no one knows when prices will hit bottom in 2023. Also, no one knows when mortgage rates will go down. So far, inflation is stubborn towards the Fed’s efforts to lower it,
Affordability is the main concern for buyers in 2023. The Washington Post recently reported that home sales prices must drop by 39% to fall back to the historical 18% of buyers’ income used for monthly mortgage payments.
Impact on Sellers
Shifting Market
Sellers forced to wait longer for their homes to sell resulting in lowering their prices face a different challenge. Buying a replacement home means higher mortgage rates.
Yet, some people need to move. Whether to relocate for a better job or move into a bigger home for a growing family.
Sadly, the days of multiple offers on a home are now gone. Fewer buyers put more pressure on today’s home sellers. Likewise, since June, the median number of days that a home stays on the market keeps increasing.
Sellers Can Still Earn a Profit
During the pandemic existing home prices skyrocketed. The New York Times reported prices rose by 45% from December 2019 to June 2022. Yet, the markets which rose the fastest are now “slowing down the fastest”.
Fortune.com predicts a drop of “up to 30%” in home prices in the most rapidly increased markets. That’s not enough to eliminate the homeowner’s equity gains in those markets. So, they can still profit.
However, home sellers looking to move up or move into a larger home for their growing family will face higher mortgage payments.
Sellers Must Time Their Move Correctly
While we provide expert predictions about the housing market in 2023 here, they are not crystal ball forecasts. For example, Morgan Stanley & Moody’s Analytics recently revised their 2023 housing forecasts predicting even larger sales price drops.
Yet, other experts predict only modest increases rather than falling prices. For example, National Association of Realtors (NAR) Chief Economist Lawrence Yun thinks home prices may rise by 1% in 2023.
That’s why timing a sale with the replacement purchase is important. Selling just before sales prices hit their lowest and buying when they do will mean bigger profits.
Impact on Investors
Cash is King
Relying on financing nowadays means suffering from high mortgage rates that squeeze profits from investment deals. This reduces opportunities to find profitable rental properties. For example, if vacancies occur when profit margins depend on consistent rents.
That’s why Cash is King in 2023. Not paying high mortgage rates means less pressure when vacancies occur. When more maintenance and repairs require cash, your reserves are ready to bail you out.
Maximize Your Returns with the Right Timing
The mantra of investments is to buy low and sell high. Yet, 2023 doesn’t provide predictable prices. These conditions make a fix-and-flip poor investment strategy in 2023.
Paying cash while prices are falling and holding properties until prices rise is your ideal investment strategy for 2023.
Thus, it’s not unreasonable to offer sellers sitting on homes for a long time a price below asking. Especially, when price cuts are common in the housing market.
Got Questions?
California Housing Market in 2023
Bankrate on January 18, 2023, published a report about the California housing market where prices are dropping.
California home sellers: Bankrate points out that the 30-year-fixed mortgage rate was 6.47 percent in mid-January, 2023. Thus, California home sellers are facing unaffordable mortgages for many buyers. Fewer buyers make selling a California home difficult.
California homebuyers: Bankrate advises homebuyers in California to wait for home prices to fall further. Wait just enough for a desired home price to become affordable. Otherwise, prices may suddenly rise to make the home unaffordable again.
Crash? Bankrate sees no signs of an imminent housing crash.
San Diego Housing Market in 2023
Here’s what experts and news media predicted last December about the San Diego housing market in 2023:
- Redfin predicting California housing market trends declared: “San Diego among housing markets expected to cool the most in 2023”. Redfin based their prediction on a nationwide housing market report released in late December 2022;
- The San Diego Union-Tribune predicted a 27% decline in house prices in 2023;
- KPBS San Diego also reported: “Interest rate hikes icing down San Diego’s hot housing market”.; and
- Channel 93.3 San Diego on January 12, 2023, reported: “U.S. home sales dropped 32% year-over-year in December, falling to the lowest level since 2015”. Yet, San Diego home prices only fell 2%.
Bankrate recently published its “Cost of Living in San Diego 2023” report. After examining San Diego’s cost of living factors Bankrate concluded:
How The Housing Market Correction Affects Buyers And Sellers – Conclusion
After viewing our post: “How the Housing Market Correction Affects Buyers and Sellers” here is a summary:
- A housing market correction will occur in 2023;
- In part caused by the Federal Reserve’s combatting rising inflation by raising lending interest rates;
- This indirectly caused mortgage rates to rise to make desired homes less affordable;
- Homes listed for sale remain on the market longer pressuring sellers to lower their prices;
- As home prices fall, opportunities arise for buyers and investors.
- Investors with cash gain the most from falling home prices when mortgage rates rise;
- While prices fall, homebuyers must budget themselves to find desirable affordable homes;
- While most experts agree that home prices will fall in 2023, they don’t know how much;
- Perfect timing is needed for sellers to sell before prices drop more;
- Buyers wait to purchase when prices fall within their budget. and
- Investors with cash also depend on good timing to buy low and wait to sell high when prices rise again.
Want to Buy or Sell a Home in San Diego?
Since timing is everything, rely on our Big Block Realtors to help you with sales pricing or negotiating an affordable purchase price.
Work with the Best Brokerage in San Diego
Best in San Diego: Big Block Realty was recognized in 2022 as the Best Brokerage in San Diego for four straight years (2018 – 2021) by the LocalBest.com site.
Big Block Realty with over 1,000 Realtors is ranked the 49th Best Independent Real Estate Brokerage in the U.S. in 2022 out of 106,000 real estate brokerages by
The Wall Street Journal partnering with Real Trends Rankings.
Contact us today to find out more about selling or buying a home in the greater San Diego area. We know every neighborhood throughout San Diego County to help you sell or buy your dream home.
Steven Rich, MBA – Guest Blogger
Search Local Real Estate Below Or Use Our: Home Search Tool:
—
HAVE ANY QUESTIONS?
Let us know, we love to help:
Call: (800) 550 – 3209
or Click: www.BigBlockRealty.com/contact
—
Connect with Big Block…
SUBSCRIBE TO OUR CHANNEL: https://www.youtube.com/@bigblockrealty?sub_confirmation=1
CONNECT WITH US ON SOCIAL HERE: https://bigblockrealty.com/social/
Find us on Instagram: https://www.instagram.com/BigBlockRealty_
Steven Rich, MBA has been involved in the real estate industry for over 30 years. As an investor, real estate agent, associate editor of a real estate magazine, a real estate marketing expert, a Wikipedia real estate article author, and as a writer.
