Despite the economic headwinds that continue to swirl, there is still room for opportunity in real estate.
While 2022 may be remembered as a year of housing volatility, 2023 presents the opportunity for some normalcy to return to the market. Mortgage rates are expected to stabilize as home sales and prices moderate, welcoming many Americans into the housing market who may have been stuck on the sidelines last year.
Real estate agents who understand the economic dynamics ahead, particularly in their local markets, will be best positioned to advise their clients, ensure efficient transactions, and create value for both buyers and sellers.
Inventory shortages will persist
For starters, persistent inventory shortages we’ve seen nationwide over recent years will continue. We’re around 3-to-6 million housing units short of where we should be (rental and for sale), with the housing market still having not fully recovered from the effects of the Great Recession.
Couple that with material and labor shortages which have seemingly become ubiquitous in the post-Covid world, and disruption in the market has become the norm. Ultimately, to keep up with growth in both population and demand, the United States needs to add about 5.5 million single-family and multifamily units in the coming years. Otherwise, we will continue to see prices surge even higher.
Rates will stabilize
Drastic fluctuations in mortgage interest rates over recent years have also stirred up hesitancy among potential buyers. However, while rates are still more than double what they were a year ago, they will likely stabilize below 6% in 2023 as inflation continues to slow.
In this situation, adjustable-rate mortgages typically become more attractive to first-time buyers because they have a lower rate than fixed-rate loans. These buyers also tend to stay in their homes for shorter periods of time.
Inflation creates uncertainty
Finally, as it has done throughout our economy, inflation continues to create uncertainty in the minds of potential buyers. Last year, buyers typically purchased their homes for 100% of the asking price, with 28% of homes ultimately selling for more than asking. In today’s market, it’s wise to counsel first-time buyers to reduce the price point for their home search to avoid going over their budget.
Despite the number of first-time buyers in 2022 having fallen compared to the previous year due to housing affordability challenges for many, NAR recommends that members continue to inform their clients about government-sponsored programs available in their area —particularly those for first-time homebuyers — as well as the variety of low down-payment financing options offered by lenders.
An agent’s strong relationship with several lenders will also help them to provide consumers with alternatives that help them find the best mortgage terms and secure the most palatable arrangement possible.
After years of upheaval, a return to a relatively normal housing market should be welcome news. As the market continues to evolve, agents who help their buyers and sellers navigate these challenges are invaluable. And while it is impossible to predict with full certainty the direction of the economy and of global marketplaces, volumes of information and valuable resources are available to ensure consumers enter these transactions possessing the greatest amount of knowledge and understanding possible.
Lawrence Yun is the chief economist for the National Association of Realtors.