If you want to find out will the 2023 US housing market be a buyer’s or seller’s market and how you can adapt to both scenarios, stay tuned.
Table of Contents
- Seller’s and Buyer’s Market: Explained
- Was the US Housing Market a Buyer’s or Seller’s Market in 2022?
- Will the US Housing Market Be a Buyer’s or Seller’s Market in 2023?
- What Should Investors Do in 2023?
- Features of a Profitable Investment Property in 2023
Whether the US housing market will be a seller’s or a buyer’s market seemingly depends on who you ask. Even real estate experts are showing indecisiveness when it comes to this issue.
Alex Capozzolo, Co-Founder at Brotherly Love Real Estate, noted the following:
“The forecast for 2023 is mixed. The industry is showing signs of lower prices, reductions in buyer demand, and higher borrowing rates. Home prices may fall slightly but not drastically. As a result, there is not much clarity.”
Given the size of the US housing market, many factors can prevail and lead to it being characterized as either a seller’s or a buyer’s market.
So, what will it be in 2023—a buyer’s or seller’s market?
We’re here to compare the stats and give potential investors as close and precise an answer as possible to whether they can expect a buyer’s or seller’s market in 2023.
We’re aware of how much they can affect your strategy planning, so you should be well-informed on the matter. Mashvisor is equipped to walk real estate investors through their investment journey, helping you each step along the way.
To find out what kind of investment climate you can expect—buyer’s or seller’s market—and get some up-to-date housing market predictions for 2023, read on.
Seller’s and Buyer’s Market: Explained
Both the seller’s and buyer’s markets carry advantages and disadvantages. For investors to better understand both climates and figure out which one they’re facing currently, we must first give you a brief explanation of both.
What Is a Seller’s Market?
When talking about the seller’s market, here’s the rundown of the situation:
If an investor finds themselves in a seller’s market, there will not be enough available homes on the market to meet the buyers’ demand. In that case, sellers have the right to ask for a higher price—an advantage they will most likely use.
But from the buyer’s perspective, it does not look so good, especially for those who are on a tight budget.
Similarly, buyers who encounter rising house prices often end up in bidding wars to get their hands on the investment property they want.
The essence of the seller’s market is that investors may have to pay a much higher price for the home they want. We’ll help you separate your “investment wants” from your “investment needs” in a few minutes.
How does this market work?
More people are searching for houses than there are actual homes to sell. So, homes are likely to remain on the market for a relatively short time before being sold, despite the high prices.
Here are some indicators that you’re attempting to buy in a seller’s market:
What Is a Buyer’s Market?
And if we’re talking about the buyer’s market, here’s the situation:
If an investor finds themselves in a buyer’s market, there will be significantly more homes on the market than there are buyers. One can argue that the buyer’s market is more attractive to investors than a rigid seller’s market.
Unlike in the seller’s market, available homes in the buyer’s market remain there for a longer period—and therefore, sellers must work harder to attract interested buyers.
In this scenario, sellers don’t have the freedom to put up high prices for their homes. Instead, it means they’ll have to be more willing to negotiate the price—as in, lower it for the potential buyers.
Another characteristic of a buyer’s market that’s important to mention here would be the high market absorption rate. It is similar to the “Days on Market” metric.
In a buyer’s market, it indicates the number of months it will take for a home to sell.
So, if you’re researching a property, and you come to a realization that the market absorption rate is higher than six months, you’re likely in a buyer’s market.
How Does a Buyer’s Market Work?
Here’s the rundown:
Investors looking to buy a home in a buyer’s market are in a much better position to get what they want when there are more homes on the market than buyers.
Here’s another perk of a buyer’s market:
The investor can also choose to offer significantly less money for the home they’re interested in—especially if that property has been on the market for a long time. The buyer’s market will typically be flooded with homes that have been sitting around for a while.
That brings us to the following question:
Is the buyer’s market an ideal time for investors to jump into the real estate market and begin their search?
It’s an appealing time for investors, sure—but it’s not perfect.
Even in a buyer’s market, not all homes will be ranked “top-quality.” The investor might get a good deal on a home—but the condition of it might not be on a desirable level.
Was the US Housing Market a Buyer’s or Seller’s Market in 2022?
According to Loren Howard—the strategic financing and real estate investing advisor at Real Estate Bees—the situation depends on two things.
Howard said, “The answer to this question is dependent on 2 things–the area you are referring to because certain areas are more overvalued than others and hotter markets. But more important than that is to follow interest rates and the demand.”
Gaining perspective can often mean being inquisitive about the real estate market’s past and future. In this case, it involves determining whether it was a seller’s or a buyer’s market in the past and, more specifically, in 2022—and what it will be in the future.
As for 2022, what was the situation in the US housing market?
In other words—was it a seller’s or a buyer’s market?
According to Nerdwallet, 2022 remained a strong seller’s market. Just to jog your memory—not enough homes were available on the market to meet the demand from buyers. Home prices skyrocketed, and investors often had to resort to bidding wars.
When was the US housing market a buyer’s market?
The last time experts characterized the US housing market as a “buyer’s market” was between 2011 and 2013. It came right after the global recession that struck the US in 2008. And from then on, the buyer’s market lasted for a couple of years.
Nowadays, there seems to be no sign of the real estate market prevailing and turning into a buyer’s market again. And with that said, here are some of the most notable predictions that marked the 2022 real estate market as a seller’s market:
Low Unemployment Rates
The first forecast for 2022 was that the unemployment rate would be low. In 2020, when the COVID-19 pandemic hit, it seemed like the end for the short-term rental industry. A significant number of businesses—both small and large—were forced to shut down. It resulted in the worst nightmare for every real estate investor.
People were required to stay at home. Millions lost their jobs, pushing unemployment levels up across the US. The Federal Reserve acted promptly, though, and the situation turned around quickly.
A year later, in 2021, the savings rates skyrocketed. In numbers, there were nearly 11 million job opportunities.
Inflation Will Remain High
The skyrocketing inflation rates are, obviously, caused by the consequences of geopolitical conflicts on the other side of the planet.
As a fact, Russia is a worldwide known and huge exporter of oil and gas. It caused energy prices to soar worldwide, making it impossible to function on a previously set budget. When it comes to oil reserves, things are looking relatively good for the US since it does not import more than 4% of Russian oil. However, the current situation still seems to affect the consumer.
The US government measures inflation by shortage costs. Likewise, rent prices increased significantly, if not doubled, in the US—even going up 15% worldwide. Why is it a shock to the US real estate market?
Well, in a typical scenario, rent increases reach 2% or 3% at most. Moreover, there were roughly four million homeowners in 2021, but that number dropped to around one million in 2022.
From the buyer’s perspective, it does not seem encouraging. However, selecting the right location for your next investment might still turn things around.
Here’s another thing to consider:
The inventory available in the real estate market is so low at the moment that a significant number of borrowers default on their loans. It pushes them in the direction of putting their property on the market for sale rather than going through foreclosure.
According to Zillow, the US housing inventory dropped down to 729,000 listings in February 2022, making it the fifth consecutive month of declining inventory.
What is the outlook for rents in 2022?
Rent and home prices are expected to continue to rise in 2022, allowing inflation to soar.
Mortgage Rates Over 6%
As of April 2022, there was a major announcement regarding mortgage rates:
The 30-year fixed-rate mortgage hit 5%, which was the highest since 2011. The 10-year ARM, on the other hand, was at 4.3%. At the moment, more and more buyers are looking for lower-cost, adjustable rate loans—no surprise there.
One factor that can lead to a buyer’s market is the dramatic increase in mortgage rates. With such a high mortgage rate, a buyer’s hope of applying for a fixed loan is significantly lower.
Whether it is a seller’s or a buyer’s market, though, it is not uncommon for investors to seek safety. And sometimes, that means they’ll opt to buy MBSs—or mortgage-backed securities.
Bond investors are warning that inflation will resume in 2023 and, therefore, are investing in inflationary assets.
There’s a rule to follow here, though:
High inflation drives higher mortgage rates. So, real estate investors shouldn’t expect to see mortgage rates decrease until inflation stabilizes.
According to Doug Perry, the Strategic Financing Advisor at Real Estate Bees, “Real estate markets are heavily influenced by interest rates, which impacts housing affordability, and the FED has aggressively raised rates while signaling they will continue to do so, putting the US economy at high risk of a recession.”
Working Remotely to Save Money
Another prediction for 2022 that turned out to be correct is that more people would choose to work remotely to lower their costs.
That’s another consequence of the 2020 pandemic.
In 2020, companies worldwide were compelled to learn how to prepare their workforce to work from home. The remote working “trend” continued, and now, according to several studies, 16% of companies worldwide are fully remote.
Is this good or bad for the real estate market?
It is not ideal, that’s for sure—and it is the primary reason the US housing market is a strong seller’s market. Remote working caused sellers to be desperate to sell their property.
Suburbs Becoming More Expensive
Again, according to NerdWallet, “family-friendly” areas are witnessing the fastest increase in value. And in a sense, the trend can be a direct reflection of the impact of millennials.
In 2022, approximately 200,000 millennials will turn 32. Why is this important? Because this demographic will be, so to say, responsible for fueling home prices for the next two years.
Does it mean that we can expect home prices to rise even throughout 2023, though?
We’ll get there in a bit.
Renters and Rental Prices Will Rise
In Austin, Phoenix, and Miami, the number of renters soared, with average rent rates spiking to over 40%. And as of December 2021, rental rates were 14% higher nationwide.
In 2022, we’ve seen more millennials marry, start a family, and look for housing. But with mortgage rates on the rise, fewer newly established families can afford a home, forcing them to opt for renting.
According to the Guardian, rental prices are 13% this year. It leaves 50% of renters burdened by the costs of their already-high rent, with one-third of their monthly income being spent on utility bills.
With inflation knocking on the door, the Russian invasion, and unbearable mortgage rates for most of the population, we can also expect energy costs to soar and the housing shortage to continue. They will drive both rents and home prices higher.
Based on the facts mentioned earlier, it is evident that the year 2022 demonstrated all the crucial characteristics of a strong seller’s market.
What can be concluded is that the prices, rent rates, and mortgage rates are all high. On the other hand, the demand is low, so 2022 might not have been the best year for the US housing market.
It’s Not All That Bad
Before dismissing the idea of investing, though, potential real estate investors should know that it does not apply to the entire housing market. It’s a fact that certain areas outperform others in terms of inventory, days on market, and demand for homes.
For clarification purposes, here are, once again, the signs of the US housing market in 2022 being a strong seller’s market:
- Low unemployment rates
- Mortgage rates over 6%
- Working remotely (saving costs)
- Expensive suburbs
- Increase in rents and renters
Now that we’ve cleared up the situation in 2022—and how it is supposed to remain until the end of the year—it is now time to look into the future, that is, the outlook for the US housing market in 2023.
Will the US Housing Market Be a Buyer’s or Seller’s Market in 2023?
Scott Anderson, a chief economist at Bank of the West, made the following statement:
“House price appreciation will come to a screeching halt under the weight of poor housing affordability and the worsening economic and financial environment.”
Does it mean that the US housing market will become a buyer’s market in 2023, though?
Not quite. It seems that the buyer’s market is far on the horizon. 2023 is expected to remain a seller’s market. With higher demand and less inventory, home prices are expected to keep rising for some time.
Remember that it is just a prediction; don’t take it for granted. As we said before, investors must gain more perspectives on investment opportunities.
On that note, here are RealWealth co-founder Kathy Fettke’s predictions for the upcoming year:
- Mortgage interest rates will continue to soar in 2023.
- Home prices will witness an increase (but not as high as in 2022) in a market that is “family-friendly.”
- Housing inventory will become weaker across the country.
- In some real estate markets, the beginning of 2023 will experience fewer home sales.
- Buyers will continue seeking to purchase budget-friendly rentals.
- Listing agents will be in high demand in 2023, while buyer agents may need to lower their fees.
- There will be wider access to data than ever before—with information being updated more regularly and becoming more visually pleasing.
- In 2023, more and more people will consider home sharing.
What Should Investors Do in 2023?
Even though investors can access reliable and up-to-date information, taking into account the scope of the real estate market, we must still leave room for speculation.
We are referring to the chance of the 2023 real estate market becoming a buyer’s market at some point—because, again, there are no guarantees. Since investors should be prepared for both scenarios, we’ve decided to facilitate the process of adapting to them.
Here are some tips for both the seller’s and buyer’s markets and what steps an experienced investor should take in both cases:
In Case of a Seller’s Market
If 2023 continues to be a seller’s market, here are some tips that can come in handy:
Clarify Your Needs/Wants
First and foremost, investors should draw a line between their needs and wants. It mainly refers to being more serious about their “must-haves.” But at the same time, it doesn’t mean you should dismiss the options most important to you.
Here’s how you can do that:
Rank your list of requirements from most to least important.
When researching an investment property, ask yourself whether the house meets most or all of your needs. If so, it should be pushed higher on the list.
The needs depend on your ultimate goal—whether you’re looking for a fix-and-flip project, a vacation rental, or an investment for the long run.
Check Your Finances
As a real estate investor, you’re likely aware of the long list of financial tasks you need to check off the list before you will be eligible to purchase an investment property and close the deal with the seller.
That said, in a seller’s market, the process will be a bit longer. The earlier you start preparing and inspecting your finances, the better.
On that note, here’s what you should do prior to applying for a loan:
- Check your credit score regularly
- Save money for a down payment (preferably 20% of the entire sum)
- Save even more money (if possible)
- Get pre-approved for a mortgage
- Consider a local lender or mortgage broker
- Research and predict future expenses
Be Ready for Bidding Wars
As we’ve already hinted, in a seller’s market, there is a high likelihood that you’ll encounter a bidding war.
Investors are more likely to end up in a “multiple offer” situation. However, you must remember one thing—and it strongly applies to a seller’s market:
Even though you might feel tempted to bid higher, it may not bear fruit every time. Instead, focus on sticking to your budget and try not to go over it for something that’s not at least 90% profitable.
Connect With a Listing Agent
If 2023 remains a seller’s market, you will need to stay on top of things—which is why proper connections are crucial.
Those selling a home are encouraged to ask their brokers or agents to connect them with a listing agent to see how many other buyers they can expect. Based on that, they can decide how competitive to make your offer.
In Case of a Buyer’s Market
Now that we’ve considered the seller’s market and how the investors can adapt to it, it’s time to look at another possible scenario—which would be the buyer’s market.
In a buyer’s market, home prices tend to be lower—and homes are usually on the market for a longer period of time. In case 2023 brings us the buyer’s market and not the seller’s one, here’s how investors should proceed:
A buyer’s market, unlike the seller’s, is not filled with any “tension.” It’s a chance to enjoy the process of investing and take your time to research everything that you’re interested in.
Since the buyer’s market is characterized by high inventory and competition here is relatively low, investors are less likely to lose out on the investment they envisioned.
It means one thing:
You don’t need to rush and put in an offer immediately. Unlike in the seller’s market, bidding wars are not so common in this market climate.
In a buyer’s market, investors will be provided with more options. And with so much freedom, both beginners and experienced investors are encouraged to take their time—and see every available property on the market that fits their needs before making an offer.
Since negotiations in a buyer’s market are much easier, here is an opening line—or, rather, a question—you should start with:
“How long has the property been on the market?”
Typically, the more days on market, the more eager the seller is to sell the property. If the seller mentions that it’s been on the market for some time now, take this as a green light and a signal to proceed.
Houses that have been sitting around for too long open a window for you to ask the seller to lower the price, cover closing costs, or provide you with the seller’s credit.
Features of a Profitable Investment Property in 2023
Regardless of whether 2023 ends up being a seller’s or buyer’s market, the key features of a profitable investment property are more or less the same.
Here are the ones we’ve singled out:
A Good Location
The first—and perhaps the most important—feature that will indicate whether a specific property is profitable in 2023 is the location. Of course, with the scope of the US market, figuring it out requires some research.
One thing to note here is that the same location doesn’t suit everyone. In other words—your choice also depends on your needs.
But here’s the good news:
If 2023 ends up leading to a buyer’s market, you will have more time to do the research and make an informed decision.
It doesn’t matter whether you’re dealing with a seller’s or buyer’s market—low-maintenance investment properties should be your top priority. Why?
Well, whether you’ll rent it for a long or short period of time, you don’t want to trouble yourself with unnecessary repairs and expenses. In this regard, you can generally get a much better deal in a buyer’s market than in a seller’s, especially if the property has been on the market for quite some time now.
Low Property Taxes
With inflation knocking on our doors and mortgage rates making it harder for homebuyers to qualify for a loan, investors are also advised to research the tax implications.
The end goal, either way, is to gain profit—and taxes may sometimes stand in the way.
We’ve successfully reached the end of the topic of whether the 2023 market will be a buyer’s or seller’s market. Now, let’s go through the most important points.
First and foremost, the difference between buyer’s and seller’s markets:
In a buyer’s market, there’s a higher number of homes available than there are actual buyers to purchase them. On the flip side, a seller’s market implies that there are not enough homes on the market to meet the buyers’ demand.
This year has been a strong seller’s market, showing signs of high interest rates, an increase in the number of renters and rental rates, remote working, and rising home prices.
Investors hoping for a change in 2023 may not get one. The next year is also expected to be a seller’s market. However, with the scope of the US housing market, nothing is certain.
The predictions for 2023 indicate that mortgage and interest rates will only continue to go up, with a drop in home sales.
If the seller’s market trends continue in 2023, real estate investors are advised to make a list of their priorities, get their finances in line, and get pre-approved for a mortgage in due time.
And if we end up in a buyer’s market? In that case, investors should definitely take their time, shop around, and negotiate confidently.
Here’s the good news:
Mashvisor is here to help you throughout your investment journey by providing you with our up-to-date information and investment tools.
With our Property Finder tool, investors can search for available properties across the entire US housing market and come one step closer to finding their ideal property.