What will the new year bring for homebuyers, homeowners and home sellers? Lower or higher home prices? Higher or lower mortgage interest rates? Or a continuation of the overheated pandemic-inspired housing market?
There’s no question that the blistering housing market of the past three years was hard on homebuyers. By October 2022, the average mortgage interest rate for a 30-year fixed is 7.24%, more than double the 3.22% level in January 2022.
According to Fannie Mae, the combination of high inflation, monetary policy tightening, and a slowing housing market is “likely to tip the economy into a modest recession in the first quarter of 2023.”
Many economic forecasters believe housing prices will decline, but that homebuyers shouldn’t fear buying during a declining market. Morgan Stanley predicts a 7% dip in home prices for 2023 that would return housing prices to where they were in January 2022 – 32% higher than prices were in March 2020 when the pandemic began. Economists with Goldman Sachs and Moody Analytics are predicting 5% to 10% declines in home prices, based on lack of homebuyer affordability, slowing housing sales, fewer mortgage applications and a looming recession, however mild.
BusinessInsider.com reports that the Federal Reserve’s overnight rate hikes have raised mortgage interest rates, pushing affordability to new lows, but that a recession could bring interest rates down again. That combined with softer homebuying demand due to inflation and sellers lowering their prices would make spring and summer 2023 great times to buy a home.
Advice for First-time Homebuyers
First-time homebuyers are discouraged by high home prices, higher interest rates and continuing inflation. According to the National Association of REALTORS, by mid-2022, first-timers made up only 26% of all homebuyers, the lowest number in 41 years. The age of first-timers rose from 33 to 36, an all-time high, while their median household income slipped to $71,000 from $86,000 year-over-year.
To help you get into a home of your own and start building equity, Berkshire Hathaway HomeServices network professionals provide the following advice to first-timers:
1. Get educated. Freddie Mac and Fannie Mae offer no-cost learning modules that help first-timers qualify for some loans, pay lower down payments, qualify to buy with lower income or lower credit, get help with closing costs or down payment assistance, and more. Berkshire Hathaway agents are always available to help with any questions or guidance.
2. Get into the market. You can’t build equity if you don’t own a home, so it’s better to purchase something now even if it isn’t your forever home. There will always be a market for starter homes, so you would do well to buy a smaller, older home in a less expensive location. The most first-timers ever recorded purchased homes in small towns (29%) and rural areas (19%).
3. Get comfortable with compromises. Your first home doesn’t need to be your dream home, so choose the one you can live with for the next five years or so, to make up closing costs, transaction fees, etc. You can always improve the features and condition of your home later on.
4. Contact a Berkshire Hathaway Real Estate Agent for more advice.
For your home selling/buying services and expert advice, call (715) 514-2392 to connect with one of our skilled Berkshire Hathaway Realty agents in Eau Claire.
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