During and after the pandemic, home sellers experienced record-breaking success with home sales. Even though inflation was on the rise, this didn’t seem to stop sellers’ success. Some home sellers were so successful that they could practically sell a house without the help of a realtor. However, in the middle of 2022, the Fed kept chiseling away at the inflation problem by raising the interest rate. As a result, the real estate market seemed to experience cooling in markets that were once very hot. Although there hasn’t been a uniform cool-off, some markets have stopped being wholly favorable to sellers. However, this doesn’t mean those markets have flipped into buyers’ markets. So how is inflation affecting the housing market as 2023 gets underway? Read on to see what you can expect this year, particularly if you plan to sell or buy a house.
Bidding Wars Are Becoming A Thing of the Past
In recent years, buyers have gone into bidding wars over properties. This may have had something to do with a strong seller’s market. However, another more important factor that encouraged bidding wars was the scarcity of inventory. Cities where a bidding war was most likely to occur included Spokane, Sacramento, Seattle, Dallas, and San Francisco, to name a few. However, as the market cools, these bidding wars are less likely to happen as much as they did in the recent past. But as a recent report by NAR pointed out, “despite weaker sales, bidding wars remain strong because of limited inventory.
Declines In Home Prices
As sellers lose control of the market, prices of homes are also starting to decline. Although sellers still list their prices at high rates, they sit on the market much longer due to unrealistic expectations. Sales prices that worked around this time last year just aren’t attracting buyers this year. Buyers are less likely to buy homes without contingencies. As sellers pass up such offers, they find that their homes sit on the market much longer. As a result, they have to lower prices to regain interested buyers. A new normal is on the rise as buyers are starting to regain some level of control in a market strongly favoring sellers since 2020.
Higher Mortgage Rates Creating Obstacles For Buyers
In January 2022, the real estate market was still a buyers’ market because the mortgage rate hovered around 3.22 percent. However, as inflation continued, the Fed began a series of mortgage rate hikes which reached a whopping 7.08 percent around the end of October 2022. As 2023 begins, they are decreasing back below seven percent. However, more is needed to encourage home buying. On the one hand, the increase in mortgage rates makes the market less competitive among buyers.
On the other hand, this also makes it difficult for buyers to afford a new home because they need more buyer power. With less buying power, home buyers must dig into their own reserves to close on homes or simply delay purchases. Inflation has impacted borrowers, creating significant hurdles, especially first-time home buyers.
The Market is in a Stalemate
As all of these changes occur, the market is almost deadlocked. While sellers still have the upper hand in many cities across the nation, they are slowly losing their power. This is primarily due to buyers’ decisions to put in lower offers with contingencies and sellers disregarding them. Additionally, some buyers simply walk away from deals and opt to “wait it out” since they can’t afford a home. Even home sellers are delaying sales and opting to remain in their homes and renovate until a better time arises to sell. Ultimately, the year may see this stalemate move in favor of buyers. But currently, everyone seems to be waiting to see how the economy will affect their next move.
