Last Updated on December 2, 2022 by Luke Feldbrugge
The answer to the question “should I buy a house in 2023?” is another question: Can you ignore the forecasts? If you can ignore the industry experts, and the numbers, and go back to the fundamentals of why a person buys a house; 2023 might be a good time to make the jump. If you are waiting for the numbers to support your decision, there’s good news and bad news on whether you should buy a house in 2023.
We all know buying a house is a tangled mix of rational decision making, emotional decision making, affordability, optimism about the future, pessimism about the same future, fear, and pure adrenaline-pumping courage. During the past couple of years of the real estate roller coaster, a lot of buyers took a break from the market and went to the sidelines to see what would happen next with house prices.
The good news toward the end of 2021 is the real estate industry started moving toward normal. The supply of homes was up, national home prices were leveling off (and even dropping in some markets), crazy bidding wars that drive up home-price growth were settling down, and things were returning to their pre-pandemic levels. Then, the bad news hit with …
Inflation hit all aspects of the economy in 2022, and it hit all sectors hard. That caused the Federal Reserve to react by raising interest rates. That typically causes higher mortgage rates, and this year was no exception. Last summer the experts were predicting that the higher interest rates would level off at about 5.5%; as of this writing, interest rates were at 7% and most people were ceasing to predict when the escalation would stop. This was the fastest rise in mortgage interest rates in one year for the U.S. housing market that anyone can remember.*
Should we forsake the experts in the industry because they were wrong? Probably not, but it’s a lesson in giving the forecasters too much influence when we are making decisions about a house. That said, the Mortgage Bankers Association chief economist Mike Fratantoni, predicted that interest rates at a national level would drop back down to 5.4% by the end 2023. He also predicted the mortgage rates would drop to 6.2% by the end of the first quarter of 2023, so if that pans out, we can have a bit more confidence in the overall prediction.
If you are looking for good news in buying a house next year, the prospect of a lower interest rate on your mortgage certainly qualifies.
The upcoming year looks like we will see a recession in the overall economy, which is negative growth typically caused by high inflation and unemployment. The only good news there is that recessions tend to drive down interest rates, which in turn drives down current mortgage rates. If that seems like another good news/bad news situation, it is. However, if you are looking for any encouragement at all on the interest rate front, the recession may be it.
Mortgage Companies Want Your Business
If you are planning on buying a house in 2023, the three plusses are:
- Higher inventory levels of homes – A higher inventory level will make it easier to find a home you prefer, and it will be less competitive to attain a signed purchase agreement to buy a home.
- Housing prices leveling off or lowering – The extreme price hikes over the past two years have literally pushed some home buyers out of buying, but with prices coming down or leveling off, some may consider coming back.
There is one additional factor to take into account. Mortgage brokers, private lenders and mortgage bankers are very, very eager to get your business. Last year, these mortgage lenders couldn’t hire enough people to handle all the mortgages they were closing. This year, they are down 35% in revenues and layoffs are increasing. Their interest in you and your mortgage may give you a bit more bargaining power in the coming year. Competition may drive them to be more accommodating and flexible, even though they are all required to follow federal and state mortgage and home loan guidelines.
It’s worth mentioning that Homes for Heroes has a network of mortgage specialists who are committed to helping people like you – community heroes that make our world a better place. Our lenders help firefighters, military service members (active, reserves and veterans), law enforcement personnel, teachers and healthcare workers with their home loans. Let us connect you to the whole team of Homes for Heroes agents, brokers, inspectors and title companies. Then, as an added thank you, we give you a Hero Reward (a check that averages $3,000) if you close on a home using our local specialists.
Buying a House in 2023 Gut Check
Let’s not concentrate on interest rates, inflation and a recession for a second. Those are just numbers – important numbers but still just numbers. We use them to explain our decision to ourselves, or our friends and family, because we don’t want to focus on the emotional and psychological reasons of why we are buying a new house.
Those softer reasons, however, are just as powerful. Traditionally, those are the real reasons why we buy a new house or a first house. We want a place to call home. We want a yard. We want to own property. We want to come home at the end of a long day and say to ourselves “this is ours.” Schmaltzy? Maybe, but we are typically not just buying a house; we are falling in love with a home.
Buying a home isn’t just about numbers and percentages and finances. It’s about starting a new chapter in the story that is your life. If you are ready to march into that new chapter in 2023, don’t let experts and projections talk you out of it.
One more thing for those of you who are first time home buyers. It’s no news to you that rents are at their highest level, and continue to go up.
“So far in 2022 rents are up by a total of 5.9 percent, compared to 18 percent at this point in 2021. Year-over-year growth has decelerated rapidly since the start of the year, but it’s still likely that 2022 will end up being the second fastest year of rent growth since the start of our estimates.” –Apartment List
In addition to that, rents are projected to continue their increases in 2023 (8.4% is one projection). That may be the only argument first-time buyers need to get off the sidelines and back into the housing search. Making all of those monthly payments and getting nothing for it (ie: home equity) except a place to live can be a powerful motivator for some folks.
Finally, if you currently own a home and want to find a new house in 2023, remember that you have equity on your side…in some cases a lot of equity. Recent numbers show that the average homeowner has $300,000 in equity in their current homes. With a lot of equity, you can level the playing field a bit when it comes to using a down payment to negotiate interest rates on mortgages. It also gives you more bargaining power and flexibility when you are making offers on houses.
Homes for Heroes Can Help You Buy a House in 2023
As you head into the 2023 real estate market, you are going to want some experts on your side. When you use Homes for Heroes, we connect you to a real estate agent who is a dedicated, local, knowledgeable specialist that will help you through the current housing market. We also connect you with our local mortgage specialist, who will help you evaluate your financial situation for your home loan. They can give you advice on the interest rates and develop strategies about your monthly mortgage payment. Finally, we round out your team with home inspectors and a title company that can help you get smoothly to closing.
“This is such a great program; my real estate agent took care of getting me signed up, which made it so easy to use. I didn’t realize all the little extra expenses that add up in getting a house and getting financial help from Homes for Heroes took a lot of pressure off. Getting the house cleaned, buying a washer/dryer, lawn equipment – it all adds up. Thank you!” – Darcy is a teacher who bought a new house in Oregon.
After you close, Homes for Heroes will send you a Hero Rewards check. It’s our way of thanking you for your service. The average savings received is $3,000 and it can be used for anything – moving costs, new furniture, house upgrades, etc. If you need a good reason to buy a house in 2023, or want to explore whether that’s even feasible, sign up to speak with our local specialists now and we’ll connect you.
*Blogger’s note: In the interest of full disclosure, I am not observing the rising rates dispassionately from a distance. My wife and I are building a new home this year, and we are applying for our mortgage this month. So, as they say, “this time, it’s personal.”