Jan 4, 2023
Q: Is 2023 the year to finally buy a home?
That depends. There are some signs indicating that it might be getting easier for many folks to buy a home. Inventory levels are still low, but there are more homes coming on the market; the bidding wars and mind-boggling offers over the asking price have died down; and buyers can once again insist on inspections, contingencies, and repairs before the deal closes.
Homes are sitting on the market for longer, so buyers can sleep on it rather than submitting an offer in the middle of an open house. Prices even dropped more than 10% in December from their peaks over the summer.
While that’s all welcome news for most first-time homebuyers, the Realtor.com® economists expect home prices will rise 5.4% year over year in 2023. (That’s on top of some already lofty prices.) And mortgage interest rates remain uncomfortably high, in the mid-6% range at last count for 30-year fixed-rate loans.
Even if prices fall, those higher rates will inflate monthly mortgage payments substantially. Those monthly housing bills are now about two-thirds larger than they were just a year ago.* Those payments are 92% more than they were just two years earlier. In other words, today’s buyers will pay about double what they would have for the same house in 2020 if they take out a mortgage.
Despite these daunting financial hurdles, I’ve been struck by the perseverance of many first-time buyers for whom purchasing a home has less to do with market conditions than their personal needs.
Recently, I was in a meeting with colleagues casting about for ideas for this column. (You can kindly help this writer out by sending questions to OnTheHouse@realtor.com.)
“That’s easy,” said a fellow writer. “Is 2023 the year to buy a home?”
Then this new mother confided that she and her husband are considering starting their own home search on the West Coast this year.
She is one of four on an editorial team of 10 people that are either actively looking or just beginning the hunt for their first home. These folks fully understand the financial challenges that lie ahead of them as they write and edit stories and videos on the housing market. They’re also scattered across the country in some of the most expensive real estate markets: New York City, California’s San Francisco Bay Area, and Denver. And they’re all in different stages of their lives.
One colleague is looking for a duplex or triplex outside of Denver, where he and his partner can live in one unit and rent out the others to help cover their mortgage. My own editor and his wife, parents of two, have been shopping for a home in the New York City suburbs for well over a year. And I learned yet another colleague was hoping to trade the Silicon Valley apartment he shares with his wife for their own house north 0f the Bay Area.
They want to raise families, build equity, and get out from under their landlords who raise rents every year. Those desires don’t fluctuate like mortgage rates.
Buying a home is a deeply personal decision. Of course, you need to be able to find a home you’d like to live in, have enough in the bank to pay for it with enough left over for maintenance and emergencies, and then have your offer accepted. And that’s not an easy process.
But many first-time buyers have prepared. They spent the past few years diligently saving, cleaning up their credit and getting pre-approved for mortgages, and becoming familiar with the areas where they hope to eventually settle down. They might have to make sacrifices and compromises. Maybe they move farther out, purchase an older or smaller home than they had planned, or even buy a home that needs more sprucing up than they anticipated. They will negotiate with sellers for money-saving concessions, shop around for mortgages offering lower rates, and find ways to make it work for them financially.
They’re determined to make it happen. So for them, 2023 will be the year to buy a home.
* The calculation is based on median list prices from December 2022, 2021, and 2020 using Realtor.com data, average mortgage rates for 30-year fixed-rate loans in the last full week of December, and the assumption that buyers put down 20%. It does not include insurance, property taxes, or homeowners association or maintenance fees.