If you’re looking at buying a house in 2023, I believe a window of opportunity has emerged.
Let me share the reasons why with some background to start.
Last Year’s Predictions for the Housing Market in 2023:
Higher mortgage rates, a bear market in the S&P 500 and NASDAQ in 2022, and a potential recession are some of the reasons why there were forecasts for an 8% decline in the national median home price by this summer. The Federal Reserve was insisting on hiking the Fed Funds rate to 5% – 5.125%. Because of these factors, housing price appreciation has slowed, with the median U.S. home sale price falling 3.3% in March to $400,528, the largest year-over-year drop since 2012.
But Home Price Changes by Region in the US
Based on the Zillow Home Value Index, home prices have declined the most out here in the west, but have stayed stable or even increased slightly out east.
Here in El Dorado HIlls, the average March sales price was down just 1% in the past 12 months and up 17% since October. In other words, the market has just about fully recovered from the slump last fall.
We Suggest A Default 10% Discount Mentality When Buying Property
Whether you’re buying a house in a bull market or a bear market, your default mentality should always be to try and get a discount to market. I mean, why not, right? My mentality for investment properties has always been to aim for a 10% discount and settle for around a 5% discount.
Speaking as an investor, keep in mind that in a market like this, distressed properties are likely to fall farther than quality properties. This is exactly what we are seeing locally. High quality properties are selling quickly and at top dollar. Properties that are less so are having more trouble finding a price that entices buyers. This is the opportunity for savvy buyers!
Remember, if mortgage rates drop, you can always refinance, but the purchase price is the purchase price for as long as you own the property.
Why a Buying Opportunity Window Is Open in 2023
2023 is not a table-pounding buying opportunity, as they used to say on Wall Street. But my conviction is strong enough that I do think buying now will lead to a positive outcome, especially the greater the discount to market you can find.
Here’s why:
1. Pent-up Demand and Growing Cash Balances
Thanks to a surge in mortgage rates, the housing market has essentially been frozen since October 2022. Sellers don’t want to give up their sub-3% mortgage rates and buyers didn’t want to pay 7%+ mortgage rates. With a standoff between sellers and buyers, both decided to take a wait-and-see approach.
The seven months of lower-than-average monthly transactions has led up to pent-up demand for housing. Housing inventory in 2020, 2021, and 2022 was already tracking below pre-pandemic levels each month. The longer inventory stays low, the more demand builds and the more capital will ultimately be unleashed into the housing market.
2. Favorable Demographic Trends
Demographic trends also support the case for buying a house in 2023. The millennial generation, which comprises the largest generation in history, is now in their 30s and entering prime home-buying age. As they settle down and start families, they will be entering the market in increasingly larger numbers.
Furthermore, the pandemic has led to a shift in preferences towards larger homes and homes with outdoor spaces. This trend is likely to continue, as more people prioritize the importance of having a comfortable and spacious living environment with areas for working from home. This will drive buyers to suburban areas like El Dorado Hills where there remains space for the desired homes.
3. Potential for a Market Rebound
While the housing market has slowed down from 2020 and 2021, there is potential for a quick rebound. As noted above, in El Dorado Hills, prices have regained almost all of the drop from the past 12 months with most of that rebound happening since October. Additionally, the Federal Reserve has indicated that they plan to pause interest rate hikes, which could lead to lower mortgage rates.
Additionally, there are indications that the stock market could also rebound in the remainder of 2023. This would lead to increased confidence in the overall economy with the potential of boosting the housing market at the same time.
In Conclusion
Buying a house in 2023 could present a window of opportunity for savvy homebuyers. While the housing market has slowed down and prices have declined in some areas, there are several factors that suggest a potential rebound in the near future. By adopting a 10% discount mentality and working with a trusted real estate advisor and a good lender, homebuyers can find great deals and position themselves for solid gains!
Interested in talking more about investment properties? Let’s grab a coffee and chat! [email protected]
The right time to buy or sell is always when your life and finances allow for it.
When things align for you, we’re here to be your trusted advisor!
