The current state of the market poses challenges for many aspiring homeowners. Seriously, who can (or most importantly, WANTS to) pay for a home with a 7.125% interest rate. Full disclosure, we bought a home in December 2022 with a 7.49% interest rate, so I feel your pain. You can make the same case for homeowners. And those that are hopeful for a market crash might not enjoy reading the information that I provide, but stay with me as I delve into the factors influencing home prices and explore predictions for when prices may become affordable again in 2023 & beyond.

Factors Influencing Home Prices

Supply and demand dynamics have a significant impact on home prices. In 2023, the level of housing inventory will play a crucial role in determining affordability. Over the last two years the market has not seen more than 3 months of inventory, and depending on where you’re at in the country it could be 1-2 months. THAT. IS. LOW. For reference, a balanced market ill have 6-9 months of inventory available. Population growth is another important factor, as it increases the demand for housing and affects prices accordingly.

Economic conditions, particularly interest rates and mortgage affordability, are critical considerations. The national average 30-year fixed mortgage rate decreased by eight basis points in June but ticked back up to 6.81% the first week of July. Low interest rates (which we haven’t seen since Summer 2022) make mortgages more accessible, thereby increasing demand and driving prices up. On the other hand, job market stability and income levels influence buyers' purchasing power and, ultimately, home prices. With unemployment being at a historically low percentage, income levels remain steady. On the flipside, inflation has been out of control over the last 18 months making it harder to afford the essentials of life.

Government policies and regulations can also shape housing market dynamics. Cue the eye rolls and holding of our breath for the Fed’s decision on whether to hike rates one more time during the upcoming July meeting. The government

Expert Predictions for 2023 and Market Trends

Due, in part, to the ongoing low inventory dilemma keeping home prices elevated, many economists predict the housing market will likely correct itself from the double-digit percentage jumps in home prices over the past few years rather than crash.

This is consistent with the latest S&P CoreLogic Case-Shiller Home Price Index, which shows signs that the housing market has experienced its correction and is now on its way to recovery. So if you’re waiting for a crash…I guess you can say it already happened.

The index posted a month-over-month national price increase of 1.3% for April before the seasonal adjustment. After a seasonal adjustment, the month-over-month increase was 1.7%. This is something of a trend that we’ve seen over the last few months.

“If I were trying to make a case that the decline in home prices that began in June 2022 had definitively ended in January 2023, April’s data would bolster my argument,” said Craig J. Lazzara, managing director at S&P DJI, in the report. “Whether we see further support for that view in coming months will depend on how well the market navigates the challenges posed by current mortgage rates and the continuing possibility of economic weakness.”

And let’s not forget that there is an overwhelming amount of equity that today’s homeowners have secured with the increases in home prices over the last few years. Even with the slight price declines at the end of 2022, home owners are still in a positive position with plenty of equity they can leverage if absolutely necessary. That means the amount of homes on the market is not likely to change any time soon.

“Homeowner equity is at the highest level it’s been in the past several decades, so homeowners have a lot of value in their home,” says Nicole Bachaud, an economist at Zillow.

Consequently, the likelihood of a housing market crash is unlikely.

Strategies for Homebuyers in 2023

For aspiring homebuyers, financial planning and budgeting are crucial steps. Amazon Prime Day was today (July 11th)…did you buy anything because it was just too good of a deal to pass up? Was that purchase budgeted? I know I know, I’m not trying to be the Amazon splurge police, but those “little” purchases can add up so quickly. Assessing affordability based on income, expenses, and savings is essential. Planning for down payments and reducing debt can increase buying power. Is this going to be your first home? Considering a smaller home or locations that are not already overly saturated  can be smart strategies for improving affordability and giving you time to figure out where you really want to be while building equity that you can leverage for purchasing your next home.

“If you badly want a house and can work remotely or switch jobs, moving to lower-priced housing markets is a good idea to consider,” says Robert Frick, corporate economist at Navy Federal Credit Union. “Millions of Americans have done that already.”

Conclusion

The state of the housing market and the affordability of home prices in 2023 are complex subjects. If you’re waiting on the sideline for the shoe to drop, you might be left out of the game for a while. By understanding the factors influencing prices, tracking market indicators, and exploring potential catalysts for affordability (flexible mortgage options and locations that are not overly saturated), buyers can make informed decisions that will pay dividends for years to come. Planning and adopting effective strategies can increase the chances of achieving homeownership in a more affordable manner. The future of home prices in 2023 is uncertain, but the likelihood of prices continuing to incrementally increase with a best case scenario of leveling off is most likely. By staying informed and proactive, potential buyers can navigate the market with greater confidence. The best way to do that is by working with a trusted and well-versed Realtor in your area.

Shameless plug, I couldn’t help myself.