As inflation rates increase, the housing market is being directly affected. Orinda Realtor asks “will this trigger the next buyer’s market?”
Here are the top areas of the housing market to watch in 2023 according to Orinda Realtor:
Buyer sentiment is defined as “a buyer’s emotional response to sales engagement.” This sentiment can help predict sales trends going forward. In October 2022, homebuyer sentiment had fallen from 83 to 38. This was the lowest level in a decade.
While homebuyer sentiment has decreased, housing inventories have decreased as well: according to the National Association of Realtors, housing inventories fell to 1220 thousand in October from 1250 thousand in September 2022.
For 2023, home inventories are expected to increase due to a reduced rate of home turnover. However, it should be noted home inventory levels in 2023 are predicted to be 15% lower than the 2019 average.
At the start of 2022, the average 30-year fixed rate mortgage rate was 3.22. Currently, the rate average is 6.78%. According to Fannie Mae, 30-year fixed rate mortgages are expected to fall to an average of 4.5%. This is expected to benefit homebuyers.
Housing inventories are expected to remain limited in 2023. As a result of lower supply, inflation, and other factors, home prices are expected to increase in 2023: the CoreLogic HPI Forecast indicates home prices will rise on a year-over-year basis by 4.1% from October 2022 to October 2023.
Key factors to watch in 2023 that can influence home prices include the following:
- Low inventory (partly due to homeowners keeping current homes to lock in lower mortgage rates)
- The purchasing power of homebuyers
- Economic uncertainty
Rent prices are expected to remain strong in the short term, with a 5.4% increase throughout 2023. This is lower than the 8.6% expected to see in 2022 but still higher than rates for stock market growth, inflation, and home values. It is believed rising rent prices could prevent potential homebuyers from saving for a down payment on a home.
Home Prices Could Vary By Region
Some areas may see advantages going to buyers more than other regions. For example, Orinda Realtor has observed that suburban areas are believed to retain their higher prices than downtown areas. On the other hand, vacation areas are expected to see declines in home prices.
According to the California Association of Realtors, the following are expected for 2023:
- Housing affordability. According to the US Department of Housing and Urban Development (HUD), housing is considered affordable when households spend 30% or less of their income on housing costs. In California, housing affordability is expected to drop to 18% of households affording to purchase a home in 2023, compared to 19% in 2022.
- Home prices. California home prices are predicted to decline to $758,600 (8.8%) in 2023. In 2022 prices rose 5.7% to $831, 460.
- Home sales. In 2023, 333,450 homes are forecast to be sold, which is down 7% from 2022 sales of 359,220 homes.
The housing market is expected to continue cooling in 2023, with the country possibly slipping into a recession. Inflation will keep mortgage rates higher, which reduces both affordability and buying power. In addition, the threat of increasing layoffs can decrease the number of available homebuyers as well. Time will tell how the housing market reacts in the upcoming months.
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