Experts believe that the US real estate housing market will remain a seller’s market in 2023 despite the declining home sales in Q4 2022.
We saw consecutive monthly drops in the total amount of home sales in the US in the last quarter of the past year. According to CNBC, existing home sales in November 2022 went down to 1.5% in December. It meant a 34% drop year-over-year. In total, 2022 saw 18% fewer home sales than red-hot 2021.
It could be due to several factors, including rising mortgage rates, high global inflation rates, and increasing property prices despite cooling market conditions.
The first two correlate with one another, as higher inflation rates impact interest rates. The Federal Reserve took a very aggressive stance against inflation in 2022 and made seven consecutive hikes last year to battle it.
The Fed’s goal is to mitigate the effects of rising prices on goods and services by making it more expensive to borrow money. Higher interest rates on loans and credit spending discourage consumers from spending unnecessarily for a certain period forcing prices on goods and services to go down. Or, at least, that’s what the Fed hopes for.
On property prices, people must understand that just because the US real estate housing market is cooling down, it doesn’t mean that property prices went down as well. It simply means that the rate at which property prices go up is much slower than in the past couple of years.
According to CNBC’s report, the median property price in the US was $366,900 in December. It is still 2.3% higher than a year ago. However, compared to the peaks we saw in summer, it is the smallest gain since May 2020.
4 Signs That the US Is in a Seller’s Market
As the real estate market cools down, a lot of folks are inclined to think that the market is swinging slowly in favor of buyers. While it is true that a cooling market leads to a stabler market, real estate industry experts believe that the US will remain a seller’s market in 2023, or at the very least, for most of it.
Here are a few reasons why they believe so:
1. Steady Mortgage Rates
While mortgage rates went beyond predictions and forecasts for 2022, experts are optimistic that rates will be more consistent throughout this year. We hit past 7% in 2022, while earlier projections were that mortgage rates will be at 5% at the end of the year. We all failed to factor in the adverse effects of the Russia-Ukraine war that blew up in March 2022.
When it happened, mortgage rates, which were already on the rise, shot through the roof, bringing us to where we are right now.
However, going into the new year, experts say that mortgage rates will be steadier in 2023, which means that buyers and investors can make more confident decisions. While 6% is more painful to one’s finances than 4%, at least buyers know what they’re getting rather than dealing with increasing rates daily.
Realtor.com’s chief economist Danielle Hale said:
“The volatility that we’ve seen lately in mortgage rates has been on the downside. So that’s in the buyer’s favor.”
Related: How to Get the Best Mortgage Rate for Investment Property in 2023
2. Positive Home Equity
Presently, sellers are sitting on still record levels of home equity, according to Hale. The US real estate housing market may be cooling down and home price growth is slowing. She said she would much rather be a seller than a buyer in the current market.
One thing to note here is that equity matters a lot. You need to look at the property’s sale history to better understand how a potential negotiation can go down. If a property was last sold in 1994 on a 30-year fixed mortgage, the home is almost paid for. It gives the seller a bit more flexibility.
On the other hand, a property that sold in 2019 may mean that the seller is under and more likely to be immovable regarding the selling price.
3. Tight Housing Supply
Housing inventory also plays an important role in such a scenario.
CNBC’s senior real estate correspondent Diana Olick reported that housing supply rose 10% year-over-year in December 2022. However, we are still at 2.9 months’ worth of supply overall. A healthy and balanced market should see around four to six months’ worth of existing home supply.
Related: Homebuilders Expecting Downturn in the Real Estate Market in 2023
4. Investors Return to the Market
CNBC also reports that the number of all-cash transactions of existing homes went up by 28% in December 2022 versus 23% from a year ago. Experts believe that the return of real estate investors caused the spike in all-cash sales.
Real estate investing was quite an interesting ride during the past couple of years. We all know how COVID-19 upended and disrupted a lot of industries, including real estate. However, the pandemic brought about an opportunity for many investors to acquire properties. Significant drops in property prices, as well as skyrocketing demands for housing, triggered the surge.
However, non-investors with a significant amount of money saved also went into the pandemic market to acquire properties for their use. In a way, the pandemic caused a buying frenzy among homebuyers and investors, eventually leading to rising prices and mortgage rates. Simply, it was the law of supply and demand at work.
However, the unexpected geopolitical conflict in Eastern Europe resulted in massive global inflation that made prices of goods, services, and interest rates soar. For most of spring, summer, and fall in 2022, investors were lukewarm about purchasing investment properties.
Things started to change in Q4 2022 as the market showed signs of cooling and mortgage rates somehow stabilized. Investors started coming out of the woodwork as they saw opportunities open for them, especially rental property investors. With housing affordability remaining out of reach for most people at present, rental property demand started to go up.
A good number of sellers will be happy that investors are back in the market now.
Will the US Remain in a Seller’s Market Throughout 2023?
At this point, it’s still way too early to say whether the US market will remain a seller’s market throughout the year or if it will swing in favor of buyers at some point.
If mortgage rates continue to hold (or even go down), a much better direction for buyers taking out a mortgage is when home pricing becomes more affordable for them. According to Hale, there was also a slight uptick in the number of first-time home buyers in December 2022. She remarked:
“That suggests that some home buyers are taking advantage of slightly lower mortgage rates.”
Interestingly, with the way the market is going, a push-and-pull is happening between buyers and sellers, according to OIick. She added:
“Sellers are afraid to list because they don’t want to catch a falling knife and buyers are afraid to buy for the very same reason.”
At this point, it’s just a matter of who jumps in first: the buyers or the sellers.
Hale believes that the buyers are already in the market, just waiting for the opportune moment to snag a good deal. She also said that in order for sales to pick up, the sellers need to start coming in.
Related: Will There Be a Real Estate Housing Market Correction in 2023?
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Wrapping It Up
At present, it’s still too early to tell whether the US housing market will stay a seller’s market throughout 2023. The important thing is that as an investor, you are armed with the right information and tools to make the right real estate investing decisions.
Mashvisor can help point you in the right direction as you do your research and investment property analysis.
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