When Will Housing be a Buyer’s Market?
Last Updated on February 1, 2023 by Luke Feldbrugge
As 2023 kicks off, the question many would-be home buyers are asking is will mortgage rates and home prices shift in their favor? So the really important question is when will housing become a buyer’s market? The answer is “now.” if you can be ready to strike while the iron is hot.
So far the start of the year has been relatively positive for potential homebuyers. Mortgage rates have dropped some and are ranging between 6-7 percent for the traditional 30-year mortgage, according to Freddie Mac.
And there is some indication that as inflation softens, mortgage rates could even drop below 6 percent. The Mortgage Bankers Association has even forecasted rates will drop to 5 percent by the end of the year.
Home prices are also moving in the buyer’s direction. U.S. home prices hit the lowest rate of growth in two years in November and gains are likely to shift into negative territory by later this year, according to the latest CoreLogic Home Price Index (HPI).
The combination of these factors could bode well for buyers that have otherwise been sidelined by high borrowing costs and a hot housing market.
The market is already seeing a shift in seller behavior. A recent Redfin report highlighted how sellers are increasingly willing to negotiate with buyers in a bid to get them back into the market. This is a huge change from the pandemic-era market that gave sellers the upper hand and a strong appetite meant buyers bid over the asking price and waived contingencies.
Buyers looking to purchase a home need to be ready to strike when the opportunity arises. Understanding your mortgage market dynamics and how you plan to finance your purchase are critical steps to being successful in your quest for a home. Homes for Heroes can help set you up with a local real estate agent and mortgage lender to help you find a new home or sell your existing home.
Buyer Concessions are on the Rise
Redfin said that buyers received concessions, including money for repairs and mortgage-rate buydowns, in roughly 42 percent of home sales in the fourth quarter, an increase from 31 percent a year earlier.
Concessions are a benefit or discount that the buyer or seller negotiates to help sell a home and close a deal. They are typically outlined during negotiations and included in closing costs.
Some types of concessions include covering the costs of new appliances, moving expenses, or repairs to the home.
This type of negotiation can create anywhere between $5,000 to $10,000 on average that can be used for home repairs or to pay down a mortgage rate and make it more affordable for the buyer to have that mortgage, according to Redfin.
The return of concessions comes as homebuyer demand has dampened due to rising mortgage rates, inflation and economic uncertainty; giving buyers that are still in the market increased negotiating power.
How Far Will Rates Drop?
Buyers are in store for another year of fluctuating mortgage rates. Interest rates are starting to reflect what most economists believe as softening inflation. That by no means indicates that the market is out of peril – many believe that the next challenge will be an economic slowdown.
For now employment figures look strong. The economy added 223,000 jobs in December, according to the latest jobs report from the Bureau of Labor Statistics (BLS). The unemployment rate in December stood at 3.5 percent, edging lower from the 3.7 percent recorded in November. This means the number of unemployed people in the country dropped to roughly 5.7 million from 6 million. And wage growth also grew by 0.3 percent. Over the past 12 months, average hourly earnings rose by 4.6 percent, down from last month’s 5.1 percent annual growth.
There is some indication that they may soon change. Sixty-one percent of business leaders expect their organizations will have layoffs in 2023, according to a recent ResumeBuilder.com survey. Most of those respondents anticipated 30% or more of their workforce would be laid off in 2023.
Job losses are expected to be followed by a contraction in the economy that up to now has performed strongly. All that spells trouble that may arrive in the form of a recession, which could add to the woes buyers are already facing in the housing market.
Get Ready to Buy
There are signs that the home prices are cooling and Fannie Mae’s latest economic forecasts see home prices dropping nearly 7 percent over the next two years. With rates normalizing in the 6-7 percent range, a continued drop in home price is part of the key to unlocking housing activity.
The second part will be to see sellers strike a meaningful return and for housing inventory to begin building again.
In the meantime, buyers interested in home buying should make sure they are using all the tools available to get the best deal possible.
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