Many consider real estate investing a foolproof way to build a consistent flow of income. What can you expect in the real estate market 2023?
The new year is a great time to prospect and forecast real estate investments. Many people often use the period to research and familiarize themselves with hot real estate investment options for the year.
Table of Contents
- Will House Prices Go Down in the US in 2023?
- Will Mortgage Rates Go Down in 2023?
- 3 Other Things to Expect from the Real Estate Market in 2023
- How to Minimize Your Risk in the Real Estate Market in 2023
However, the current state of the real estate market and the economy is a bit confusing and can hold back investors from investing their cash. The cost of everything, including mortgage rates and home prices, is on the rise.
Additionally, the past year wasn’t particularly good for real estate investors. Home prices hit all-time highs, then slumped fast. Many expected a housing market crash. As such, when in comes to real estate investing, many investors are hesitating this year.
On the positive side of things, 2023 could be the year we see the market spring back and become profitable again.
Let’s look at the year’s forecast and a few predictions you need to know about the real estate market 2023. We’ll also show you how Mashvisor’s tools can help you in your real estate investing journey.
Will House Prices Go Down in the US in 2023?
No, home prices are still going up in the real estate market 2023. The market won’t crash, but prices won’t come down either.
In November 2022, the national median property price for active listings was $416,000. It represents an increase of 11% compared to the same period in the previous year.
However, it’s not all gloom. The November rate is slower than the 16% annual average growth rate in June and July. It is a forecast that the property price growth rate could be calming down. In short, while home prices are expected to still go up in 2023, the growth will be slightly slower than last year.
In addition, there’s a high demand for housing but a shortage of homes for sale. It is another factor that will lead to an increase in home prices. Yes, the prices may dip from month to month, but they’ll still be higher than they were at the beginning of the year.
As a real estate property seller, it will put a smile on your face. For buyers, here’s some advice for you.
What Do These Predictions Mean for Sellers?
As a real estate property seller, rising property prices mean that you’ll enjoy higher profits. It is good since you’ll need it when purchasing your next investment property.
But it doesn’t mean that higher profits are guaranteed. Make sure you work with an experienced real estate agent who knows the ins and outs of your local market.
Also, don’t be in a rush to sell. Wait for the right time and the right buyer who gives you the right offer. Some buyers will give you a lowball offer. If you aren’t distressed, stay on the real estate market for a bit longer to maximize your property’s value.
Always remember that the least desperate person in any deal always has the upper hand.
Related: Should Investors Work With Real Estate Agents Near Me?
What Do These Predictions Mean for Buyers?
As a buyer in the real estate market 2023, you may worry due to the rising home prices. However, you can still take advantage of the expensive market and position yourself to make handsome profits.
Firstly, you need to determine how much you’re willing to spend to acquire your home. Create your budget and stick to it. Don’t cave into the pressure to buy a property you can’t afford just because you want to beat your competitors. We’ll take a deeper look into this later.
We understand that waiting for the right time to buy a well-priced home may be frustrating. But you’ll appreciate buying a property that brings you profits instead of paying an expensive mortgage out of your own pocket.
Home Buying Tips
Here are some important tips for you to follow when buying real estate properties this year:
- Save the 20% down payment: You want to have at least 20% of the property’s selling price as a down payment. If you have less than 20%, you can still acquire a mortgage, but you’ll need to pay for private mortgage insurance (PMI). To avoid this, aim to prepare at least a 20% down payment. It’s possible if you remain focused and patient.
- Follow the 25% rule: Ideally, ensure that your monthly home payment is no more than 25% of your monthly income. The payment includes mortgage principal, interest, home insurance, and property taxes. You must also take care of the homeowners association (HOA) fees and any other extra fees associated with your mortgage.
- Choose a good mortgage: Let’s be honest; some mortgage providers out there are outright punitive. You don’t want to tie yourself down to a 30-year mortgage with thousands of dollars in interest and extra fees. Go for a 15-year conventional mortgage with a fixed interest rate. In case you’re wondering why we recommend a 15-year mortgage, keep reading to find out why.
Will Mortgage Rates Go Down in 2023?
No, the mortgage rates will not go down in 2023.
In 2021, the average mortgage interest rate was lower than ever. But the rates almost doubled in 2022 and have been going up ever since. What should we expect in 2023?
The Federal Reserve raised interest rates in 2022. As a result, the average interest rate for a 15-year mortgage with a fixed rate went from 2.8% in January 2022 to 6.36% in October. It is the highest it has ever been in 15 years. Similarly, the average rate for a 30-year mortgage with a fixed rate hit 7.08% in October.
As you can already tell, it is why we recommend 15-year fixed-rate conventional mortgages. They generally come with lower interest rates compared to 30-year mortgages. Also, you finish paying up the principal plus interest much sooner. Less repayment time means more savings.
So, what are the predictions for mortgage rates in 2023?
Our predictions are that the rates may hit 7.25% and 8% for 15-year and 30-year fixed-rate mortgages, respectively. The rate at which the mortgage rates are growing will regularize later in the year and range between 5.25% and 6%.
However, there’s certainly no guarantee that the mortgage rates in the real estate market will indeed come down. It’s entirely dependent on whether the Federal Reserve will get inflation under control, prevent a market crash, and contain the aggressive mortgage rate increases.
What Do These Predictions Mean for Buyers?
High mortgage rates mean that real estate properties become less affordable. Again, don’t cave into pressure to buy properties that you can’t afford. Should the market crash, you still want to be in a position to make your monthly mortgage payments.
But don’t let it hold you back, either. If you can afford it, go for it.
Remember to stick to the down payment, monthly payments, and mortgage tips we shared in the previous section.
What Do These Predictions Mean for Sellers?
Higher mortgage rates tend to price out many interested buyers who might not be in a position to afford your property. Your property might have sold like hot cake two or three years ago. Don’t expect the same to happen this year. Your listing could spend more time on the market. Be patient as you listen to different offers.
3 Other Things to Expect From the Real Estate Market in 2023
What other things should real estate investors be on the lookout for in the real estate market 2023? Here are some of our predictions;
1. Will Housing Inventory Stay Low?
We’ve been seeing a shortage of housing supply in the real estate market for a while now. There haven’t been enough listings and homes on sale to satisfy buyers’ demand.
Many experts differ when it comes to housing supply predictions in 2023.
Looking at the trends just before the 2008 housing market crash, you can observe that housing inventory peaked at about twice what you can expect to see in a healthy real estate market. Today, we only have half of what we need, meaning there won’t be a crash.
Current property owners are less likely to trade in their properties with a 3% mortgage rate for a new property with a 7% mortgage rate. In addition, many builders are taking a step back and slowing down on the production of new housing.
As such, we won’t be seeing a boost in housing supply from new housing projects. You can expect the housing inventory to remain low.
On the other hand, current housing trends tell a different story. Since May 2022, housing inventory has been moving up gradually. November experienced the largest month-over-month jump in 2022. The increase was about 46% over the same period in the previous year.
While the trend may be encouraging, it’s important to note that the total number of active listings in November 2022 was still 38% lower than in the pre-COVID era (November 2017-2019).
What Does This Mean for Buyers?
Low housing inventory means that you need to stay on top of your house-hunting game. The best homes are likely to be snatched up fast. Most homes in November 2022 spent 56 days on the real estate market, which is 18 days less than pre-2020 levels.
It means that you won’t have a lot of time to look at multiple potential investments and dilly-dally as you weigh your options. Here are some tips for you:
- Don’t limit yourself: Sometimes, the market you’re interested in can be very competitive. The best thing to do in such a scenario is to expand your search. You might be surprised to find exactly what you’re looking for in a less popular neighborhood at a much lower price. Again, find a real estate agent who really understands the local market.
- Know your priorities: If you can’t find a house with everything you want, sacrifice some wants for your needs. If you can do without some features, then you don’t absolutely need them. You can start with a less expensive home in the best neighborhood and then upgrade slowly.
- Get pre-approved: Getting pre-approval for a mortgage before you go house-hunting is essential in any real estate market. It’s especially important when the housing supply is low. If you can’t do this legwork in advance in such a market, a pre-approved buyer will snatch up the home you desire right in front of your eyes.
What Does This Mean for Sellers?
Selling a home in a market with low inventory means that you have less competition. If your property is in a good neighborhood and has some desirable features, you can expect to receive multiple offers.
Keep in mind that higher mortgage rates have priced many buyers out of the real estate market. If your property isn’t the best looking or doesn’t have excellent features, you’ll still receive offers but not as many as you would have a few years ago.
If you’re going to be looking for a new home, make sure you find your next property before you sell. It’s less likely that the new owner of your property will allow you to live on their property before you decide.
2. Are Foreclosures Going to Increase?
The COVID-19 foreclosure moratorium expired in September 2021. The next few months saw a steady rise in foreclosures that might have hit their peak. Foreclosure rates are currently up by 57% from a year ago but went down by roughly 5% between October and November 2022.
While foreclosure rates in November eased down, they were still almost double the rate in the same period in the previous year. In addition, they’re still 80% above pre-pandemic levels.
We can predict that the rates will ease out later in the year as unemployment rates go down. Remember, mortgage rates are also expected to regularize later in the year. As such, we may see fewer foreclosure starts compared to 2022.
Though the rates are still way higher than pre-pandemic levels, the only difference now is that homeowners now enjoy a large boost in home values. Even those struggling to make monthly mortgage payments have equity in their homes and aren’t underwater.
For starters, being underwater describes a situation when you owe more than what your real estate property is worth.
We might not have experienced as many foreclosures as expected once the foreclosure moratorium expired since homeowners now have so much equity.
Again, as a buyer looking to invest in the real estate market 2023, remember to only invest in a property you can afford. Shop around for a 15-year fixed-rate conventional mortgage whose monthly payments will be a maximum of 25% of your monthly income.
3. Will 2023 Be a Seller’s or Buyer’s Market?
For two consecutive years, “hot” and “sellers’ market” were the terms used to describe the majority of real estate markets in the US. It won’t be the case in 2023. Predictions show that different real estate markets will start to experience differences in demand.
Remember, housing inventory is going to stay limited. Homebuyer demand is also expected to remain suppressed by affordability and economic issues. These factors will balance out the market and prevent it from crashing and swaying to one side or the other.
The pandemic saw an increase in buyer demand for properties in suburban and smaller markets due to the desire for more space and flexibility to work remotely. Besides, many people were looking for affordable housing.
This year, many companies, offices, and firms are back to full operation and capacity. Many larger markets will return to pre-pandemic levels and experience increased demand. On the other hand, home prices in the smaller markets will fall.
2023 will be more balanced since there’s a lot of variability in how different markets are adjusting.
Related: Is It a Buyer’s or Seller’s Market in Real Estate? How to Tell the Difference
How to Minimize Your Risk in the Real Estate Market in 2023
We’ve already seen that we can expect the real estate market 2023 to neutralize. While home prices and mortgage rates may not necessarily come down, they’ll stop growing at the current steep rates.
Regardless, if you wish to invest in real estate in 2023, you’ll still need to deal with the consequences of the past two years’ market. For example, home prices and mortgage rates are still going to stay higher than pre-pandemic levels.
That said, here are some tips to help you keep your risk level in control in 2023:
1. Create a Budget
Getting your finances in order and creating a budget is always the first step to minimizing your risk when investing in real estate.
Check your current savings, income, and expenditure and consider how they’re going to change once your invest. Afterward, use your financial situation to determine how much money you can afford to buy a real estate property.
Your budget should include the following:
- Down payment
- Closing costs
- Monthly mortgage payments
- Property recurring expenses
Though budgeting has always been important, it’s crucial, especially now in 2023. With the inflation rate hitting 7.1% in 2022, knowing how much you’re going to spend while factoring in any unforeseen events is a must.
After all, no investor wants to make the big move only to face foreclosure a few months or years down the line.
2. Invest In the Right Location
Real estate prices, in the long term, tend to follow median household incomes. If median household incomes increase, so do real estate prices.
However, keep in mind that real estate is also bound to bust and crash cycles. There will be times when home prices go way beyond the median household income. Conversely, there will be times when they’ll crash and go lower than they should be.
Your best bet is in cities where the population and incomes are rising, but property prices aren’t as high as the incomes.
Typical investors choose an investment city based on where they grew up, work, live, or simply from conversations with family and friends. Such investments are a huge gamble as they don’t account for the economic prospects in that location.
For example, if a city grows slower than the nominal GDP growth rate, then your investment will perform poorly. Also, if current prices are crashing, then future returns won’t be great.
For your investment to do well, invest in a city that’s growing fast, with a lot of well-paying white-collar jobs, and with reasonable current property prices.
The process may not be everyone’s cup of tea since it involves a lot of work. But Mashvisor makes it easier for you. We regularly publish Top Locations reports in our blog section. It helps you simply find the best investment locations in one guide for you instead of analyzing different reports and analytics.
Related: Why Mashvisor Is the Best Real Estate App for Buyers
3. Add Mashvisor to Your Arsenal
One trend that has defined the real estate space in the past two decades is the spread of technology in the scene. Despite its relatively short history in the industry, technology has now taken over real estate investing by storm.
Technology has changed the way real estate brokers, agents, and property managers go about their business. But the impact has been more significant for investors. This is where Mashvisor comes in.
What Is Mashvisor?
Mashvisor is an online real estate platform that uses machine learning and AI algorithms to help real estate investors find investment properties that match their financial and investment goals.
The platform is a one-stop shop for modern-day investors. It provides you with data and analytics to allow you to predict any market’s or listed property’s performance. You’ll find predictive analytics that gives you insight into future trends and forecasts based on historical and comparative data.
Our heatmap tool will help you conduct a neighborhood analysis. Once you have a few potential neighborhoods in your list, you can use our Property Finder. It will help you search for lucrative property listings in your desired neighborhood.
Afterward, our investment property calculator will help you carry out an in-depth real estate property analysis. You don’t have to worry about data accuracy and reliability since we pull our data from reliable sources, such as MLS, Airbnb, and many others.
One thing that makes us stand out from other online real estate platforms is that we provide you with data and analytics for both long term and short term rental strategies. It allows you to carry out a side-by-side comparison and choose a rental strategy that matches your goals.
Sign up for Mashvisor today and start investing in the real estate market 2023.
Is 2023 a Good Time to Invest in Real Estate?
Yes. Regardless of what’s going on in the real estate market 2023, the market won’t crash. It’s a perfect opportunity to invest. The value of real estate properties will go up even if it’s not by the huge margins seen in the past two years.
With the mortgage rates and property price rising, you’ll need to do a lot of work on your end. You don’t want to end up buying a property you can’t afford. It means you need to budget well and choose the right investment locations.
Above everything, use Mashvisor. We provide a wide array of tools to help you in whatever step of real estate investing you’re in.
Schedule your demo today and see how Mashvisor’s tools can help you.