If you’re planning on buying a home this year, you likely know you won’t be dealing with typical circumstances. The real estate market has been completely upended by the pandemic along with its ensuing financial fallout, and it has yet to recover. Extreme market conditions have characterized the last two years. However, while things are beginning to settle down, the market is still far from stable.
Here’s what to expect when buying a home this year, and how to make the most out of the current market conditions.
Flattening home buying prices
Home prices shot up by 18.2% year-over-year in 2021, and then a generous 9.6% in 2022. The National Association of Realtors (NAR) predicts median existing home prices will inch up just 0.3%, and new homes will rise by 1.3% in 2023. This is fabulous news for buyers who were looking at inflated prices on homes these last two years.
Stabilizing mortgage rates
Mortgage rates more than doubled in 2022, from approximately 3% to more than 6%, further driving up the price of buying and owning a home. In contrast, the 30-year fixed mortgage is expected to average between 5.2% and 6.8% in 2023, according to recent predictions by
Fannie Mae, Freddie Mac, the Mortgage Bankers Association and the NAR. While the Federal Reserve still plans to raise rates, it’s slowed its pace, with the most recent increase in December being just 0.50%, as opposed to previous 0.75% hikes. Lenders will likely slow down their interest rate increases as well.
More negotiating room for buying parties
In recent years, the home-buying process was characterized by fierce bidding wars, which left little to no room for buyers to negotiate. That’s about to change. With the supply of available houses on the market creeping closer to matching the demand, buyers will have more negotiating power and will be able to stand firm on their personal preferences, like home inspections and a lower price.
Tips for buying a house in 2023
If you plan to buy a new house this year, here’s how to prepare for and ensure a smooth and successful process.
Get your finances in order.
It’s a good idea to verify you can afford to buy a new home before you start your search. If it’s possible, take a good look at your finances for at least half a year before you plan to start looking for a new home. How much money do you have saved up for a down payment? How much can you afford to spend on a monthly mortgage payment? Ask these questions before getting started to avoid disappointment later on in the game.
Boost your credit score.
You’ll need a minimum credit score of 670 to qualify for a home loan from most lenders, so make sure your score is up to par before you hit the market. Work on paying down debt, paying your bills on time or early and lowering your credit utilization in the months leading up to your search. You’ll also want to avoid opening new cards at this time.
Understand your mortgage options.
Depending on your personal circumstances, you may benefit from a mortgage backed by the Federal Housing Administration (FHA), which only requires a 3.5% down payment, or a VA mortgage, which requires no down payment. Similarly, a 30-year fixed-rate mortgage may be in your best interest, or consider going with a 15-year adjustable-rate mortgage (ARM). Make sure you know your options well so you can make an informed choice.
Shop around for a mortgage lender.
Do your research before choosing a lender. Look for a lender that offers the kind of mortgage you need, and ask for referrals from recent clients. You’ll also want to compare the loan estimates you get from different lenders, looking at the rates, fees, estimated closing costs and anticipated monthly mortgage payment.
Get your pre-approval before you start your search or attempt buying.
This way, you’ll know exactly how much house you can afford, and sellers will regard you as a serious buyer.
Move quickly when you’ve found a possible yes.
The market may be cooling down, but it’s still competitive. If you want to buy a home this year and have your finances worked out before you start shopping, it’s a good idea to make an immediate offer on the home you like.
If you plan to buy a home in 2023, you’ll be dealing with a market that’s slowly settling down, but is still far from stable. Use this guide to learn what kind of market conditions you’ll be facing and how to prepare for the process.
Do you plan to buy a home in 2023? Share your best tips in the comments.