Amid various national developments and the increasing costs of goods and services, you might be curious about the effects on the real estate sector.
Will we witness further surges in property values? How will the real estate market fare in our present economic conditions? Whether you're in the process of selling, buying, or staying in your current residence, here are the real estate trends of 2023 that demand your attention!
#1: Home Inventory Is Low but Growing
The real estate market has grappled with a persistent issue of low inventory for some time. This essentially means there haven't been enough homes available for sale to meet the demand of prospective buyers. This trend was exacerbated during the tumultuous year of 2020. However, there are signs that this trend is undergoing a transformation. Inventory levels have been on the rise since May 2022, and November marked the most significant month-over-month increase of the year, about 46% higher than the same period the previous year.
Nonetheless, it's essential to note that as of November 2022, the number of active home listings was still approximately 38% lower than the levels observed in November from 2017 to 2019, before the onset of the 2020 challenges. Rest assured, we will guide you through what to expect if you're contemplating a purchase or sale in the near future.
What Low Inventory Means for Buyers
Reduced inventory levels necessitate vigilance during your house-hunting process, as the most desirable properties are likely to be swiftly claimed. In November 2022, the average time homes spent on the real estate market was 56 days, which is 18 days less than the customary duration before the challenges of 2020.
This leaves little room for hesitation in your home search. If you aim to secure a favorable property in this tight market, here are some recommendations:
Sacrifice some wants.
If you're having trouble locating your desired home, consider prioritizing your essential requirements over the nice-to-have features. Seek out the most affordable property in the finest neighborhood within your budget and plan to enhance it gradually.
Expand your search.
Is the area in which you intend to make a purchase highly competitive? You may discover a hidden gem in a less trendy neighborhood. Collaborating with a knowledgeable real estate agent who has a deep understanding of the locality is the most effective means of locating a home that aligns with your financial constraints and lifestyle.
Secure pre-approval ASAP.
Securing pre-approval for a mortgage prior to commencing your house search is essential in any market. This becomes even more crucial in a situation of limited housing supply. Neglecting this preliminary step in a market with low inventory could potentially allow a pre-approved buyer to swoop in and claim the home you desire before you have a chance.
What Low Inventory Means for Sellers
For home sellers, a low inventory scenario translates to reduced competition. If your property is situated in an excellent location or boasts desirable features, you can anticipate receiving multiple offers.
Conversely, the impact of higher mortgage interest rates has disqualified some prospective buyers from the market (more on this later). Thus, if the home you're selling doesn't stand out as the most attractive one in the neighborhood, you will still receive offers, albeit likely fewer than a comparable property would have garnered in previous years.
Another vital consideration is to secure your post-sale living arrangements before listing your current home. When purchasing a new home after the sale of your current one, there's no guarantee that the new owner will allow you to remain there until your chosen time (though this can potentially be negotiated as part of the purchase agreement).
#2: Annual Home Values Are Still Rising
Indeed, home prices continue to exhibit year-over-year growth. In November 2022, the national median home price for active listings rose by 11% to reach $416,000 compared to November 2021. However, it's worth noting that this growth rate lags behind the average 16% annual increase observed in June and July, potentially indicating a moderation in the pace of home price escalation. Consequently, it appears that 2023 is likely to be a year of relatively slower price growth.
Nonetheless, given the persistent robust demand from buyers and a shortage of available homes, it's improbable that prices will experience a sharp decline. They might experience minor fluctuations on a monthly basis, which aligns with the typical seasonal price trends following the peak in early summer. Despite these fluctuations, prices are anticipated to remain higher than they were at the outset of the year.
For sellers, this should be a source of optimism, and for buyers, stay tuned as we have advice tailored to your situation as well.
What Higher Prices Mean for Buyers
When entering the realm of real estate in this pricey market, it's absolutely crucial to have a clear understanding of your true housing affordability. Make a steadfast commitment to sticking to that budget, and resist the temptation to buy simply because you're weary of seeing others swiftly snatch up appealing homes.
We understand that the wait for the right home within your budget can be exasperating, but your patience will pay off when your home becomes a blessing instead of a colossal headache stemming from an unmanageable mortgage.
To confidently embark on your home-buying journey this year, adhere to the following guidelines:
- Ensure that your monthly house payment does not exceed 25% of your take-home pay. This payment encompasses principal, interest, property tax, home insurance, homeowners association (HOA) fees, and if your down payment falls below 20%, private mortgage insurance (PMI) – an additional fee included in your mortgage to safeguard your lender (not you) in the event of missed payments.
- Strive to save a substantial down payment. Ideally, aim for a down payment of at least 20% to avoid PMI. For first-time home buyers, a smaller down payment ranging from 5% to 10% is acceptable, but this will necessitate PMI payments. The achievement of a significant down payment is within reach; it requires persistence and dedication. Who knows, you might find yourself with a five-figure down payment or more within the next year.
- Opt for a 15-year fixed-rate conventional mortgage. The most cost-effective home loan option, and the one we exclusively recommend, is the 15-year fixed-rate mortgage. Lengthy alternatives such as the 30-year mortgage, FHA, VA, USDA, and adjustable-rate mortgages will burden you with tens of thousands of dollars in extra interest and fees and keep you in debt for decades. Steer clear of these options!
It's time to analyze the figures using our complimentary mortgage calculator to determine a monthly payment that aligns with your financial limits. Following that, collaborate with a knowledgeable real estate agent to identify homes available for sale within that specified budget.
For additional guidance on the home-buying process, make use of our comprehensive Home Buyers Guide, which provides all the information you require to purchase a home with confidence.
What Higher Prices Mean for Sellers
A handsome profit could be in store, which is terrific news because that additional money will come in handy when you're in the process of purchasing your next home. To secure the most advantageous deal for your current property, team up with a seasoned agent who possesses a deep understanding of the local real estate landscape.
Additionally, exercise patience and await the right offer. Certain buyers might attempt to present a lowball figure. If you aren't in a rush to relocate, it's wise to hold out for an offer that maximizes your profits. Keep in mind that in negotiations, the party with the least urgency often holds the upper hand.
#3: Mortgage Interest Rates Are Higher
In 2021, the average mortgage interest rate, which represents the percentage of your loan amount that lenders charge as interest, reached its historical low. However, it has since seen an increase.
This rise in interest rates can be attributed to the Federal Reserve's decision to raise rates in 2022. For instance, the average rate for a 15-year fixed-rate mortgage surged from 2.8% in January 2022 to 6.36% in October of the same year, marking the highest level in over 15 years. Simultaneously, the average rate for a 30-year fixed-rate mortgage reached 7.08% in October.
It's worth noting that this is one of the key reasons we exclusively advocate for 15-year mortgages. They typically offer lower rates than 30-year mortgages, and since they reach maturity 15 years sooner, you end up paying significantly less interest over time. This double benefit makes it a savvy financial choice.
For those considering refinancing or obtaining a mortgage from a lender that aligns with RamseyTrusted and prioritizes your goal of accelerating home ownership, we recommend reaching out to our partners at Churchill Mortgage.
Impact on Buyers
Increased interest rates can impact affordability, so it's important not to rush into buying a house if you aren't fully prepared. However, it's also essential not to be deterred. Even in a market with higher interest rates, it is still feasible to purchase a home that fits within your budget.
Remember to adhere to our recommendations concerning the monthly payment limit, down payment amount, and mortgage type (as detailed in Real Estate Trend #2), and you'll be in a strong position.
Impact on Sellers
Rising interest rates may reduce the pool of motivated buyers for your property. Consequently, while houses may have been selling rapidly in the past, you may experience a slightly longer duration on the market now. Prepare for some patience while awaiting offers.
#4: Growth of Online Real Estate Services
Undoubtedly, you're familiar with real estate platforms such as Zillow, which enable you to browse or list properties for sale on the Internet. However, are you aware that online services now extend to the buying and selling of your home?
External Purchasers
Here's how the emerging iBuying trend operates: You provide information about the property you wish to sell to companies like Opendoor. They purchase it from you, invest in its refurbishment for resale at a higher price, and handle all aspects of property processing, including inspections, repairs, and property viewings.
These companies promise to reduce your hassles and charge a fee that is roughly equivalent to a real estate agent's commission for selling expenses. However, it's not without its drawbacks. Some of these firms tack on an additional service fee, which might translate to reduced profits for you.
What's more, you miss out on the advantages of working with a highly skilled agent who possesses in-depth knowledge of the current real estate market in your area and can potentially sell your property for a higher price.
Opting for a "Virtual" Agent
Hybrid services like Redfin aim to cut traditional agent commissions by providing online solutions. This grants you some of the services you'd receive when collaborating with an agent, all at a lower cost. Consider it as a compromise between working with an agent and selling your property independently.
When it comes to selling your home, be cautious about choosing a middle-ground approach. Your home is your most valuable asset, and you typically get what you pay for. The peace of mind that accompanies having a dedicated real estate agent throughout the entire process is well worth the extra expense and can help you avoid additional headaches. Why go virtual when the benefits of working with a real person are significantly superior?
Mobile or Online Closings
In related developments, digital technology has made it simpler to manage virtual documents essential for property transactions. For instance, many property transactions now employ electronic signature applications and remote online notarization to streamline the process. In other words, you could purchase or sell a property this year without ever leaving your vehicle or changing out of your bathrobe and slippers.
You can anticipate the emergence of more of these trendy digital services in the real estate sector in 2023 and beyond. However, it's crucial to exercise discernment and consider your budget and the expertise of a skilled real estate agent to ensure you secure the best deal on the right property for your needs.
#5: More Accessible but Risky Home-Buying Alternatives
Let's delve into some of the contemporary and "innovative" methods of purchasing a home (proceed with caution!).
Rent-to-Own
If you're eager to own a home but your finances aren't quite there yet, some sellers, like Divvy, present a rent-to-own arrangement. In this arrangement, you agree to rent the property for a period, ranging from several months to several years, before eventually becoming the owner.
The "advantage" of rent-to-own is that it provides a relatively rapid entry into homeownership without the need to wait to accumulate a down payment (though our stance on that is clear). Additionally, immediate mortgage qualification is not mandatory.
The downside of rent-to-own is that it increases your monthly rent because a portion of your monthly payment contributes to future homeownership. Given the nationwide rise in rental prices, it's not an ideal time to pay even more!
Furthermore, if you later decide against purchasing the property or unforeseen circumstances result in a contract breach (e.g., failure to secure mortgage approval), you won't recover the extra payments made. They would essentially be wasted. Additionally, you may be responsible for property maintenance and repairs even while you are renting. This is far from a favorable arrangement!
In summary, rent-to-own is a seriously ill-advised route to homeownership, so exercise caution. If you're not financially prepared to buy a home, it's best to continue saving for that down payment and wait until your financial situation is more stable. With determination and effort, the day you can afford a home will arrive sooner than you think.
Down Payment Loans
Another risky trend in the real estate sector to steer clear of is obtaining a personal loan to cover your down payment. This is akin to purchasing a home with a 0% down payment. You essentially borrow the entire cost of the house, but in this scenario, you're borrowing from two different entities, each charging different interest rates (equating to double the complexity and potential issues).
Purchasing a home without a down payment is an unwise choice. Remember, you should aim for a down payment that encompasses at least 5% to 20% of the property's value. Acquiring a house with anything less will hinder your ability to attain other financial objectives, as you'll end up paying significantly more in interest and fees. Fortunately, very few mortgage lenders permit this, and it might even disqualify you from obtaining the mortgage you require.
Take Control of Real Estate Trends With an Experienced Agent
Whether you’re selling or buying, you can take advantage of the current real estate market trends by partnering with an experienced agent. CALL ME TODAY. Let’s talk about reaching your real estate goals!
