With rising costs of housing and a slump in sales, real estate has been the most affected industry during and even after the pandemic. As the pandemic’s effects slowed down over the past year, the industry is slowly regaining its strength. There is still a long way to go before the industry can resume normal operations. So, whether you are selling or buying a property, you need to watch out for these real estate trends for 2023.
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What Are Real Estate Trends?
From mortgage rates to location and home prices, real estate trends keep fluctuating. Lately, we have seen how the COVID-19 pandemic has affected the operations of the supply chain in this industry. Low inventory raised home prices, which impacted the purchasing power of buyers. As life slowly regains its momentum after the pandemic, so does this industry. It is expected that this year will give the real estate market room to breathe.
To know how, let’s learn about new real estate trends that will shape up the market in 2023.
Real Estate Trends to Watch in 2023
It is expected that the industry will see some changes in the coming years. Here are top real estate trends you need to keep an eye on in 2023.
Digital Hunting for Housing Will Rise
The digital transformation has changed the way we work. Technology is revolutionizing this industry and offering convenience like never before. The rise of tech-based operations accelerated after the pandemic. It has given birth to digital tours of the property. Now, most people are opting for this practice to tour the property virtually rather than stepping outside.
This trend is only going to grow with time because of its ease and convenience. It is worth mentioning here that, by now, touring virtually and getting a mortgage are the only aspects of real estate that have gone digital.
There are different real estate platforms like Zillow and Realtor.com that offer this option.
Inventory Will Grow Slowly
Low inventory means different things to a buyer and to a seller. In general, it means the availability of homes is lower than the buyer’s demand. The reason for low inventory is ongoing uncertainty and high mortgage rates. People don’t want to sell their homes and settle to buy a new one at high mortgage rates. However, the trend has slightly turned positive. After March 2022, inventory has been moving upward, but not relatively higher or even equal to the listings before 2020. Here are some tips for buyers and sellers when there is low inventory.
For buyers
- You need to sacrifice some wants and needs. In a tight market, you can’t find the home you desire. You need to prepare yourself to bid farewell to some must-haves in the property. The best tip to get the home of your dreams is to find an affordable location and upgrade it as per your requirements.
- Search, search, and search. In a slim real estate market, you need to expand your hunt to find the gem.
- When inventory is low, you need to be vigilant to get a mortgage approved before you start your hunt for housing.
For Sellers
- In most cases, low inventory is favorable for the sellers. If you want to sell your house in the current tight market, you can get a number of offers due to limited inventory. Your listing will appeal to the buyer even if your property is not staged properly.
- Also, for sellers, you need to keep in mind that due to the limited number of houses, you won’t easily find your next residence. So, you need to make arrangements accordingly.
Mortgage Rates Will Remain High
High mortgage rates are unfavorable for both buyers and sellers. For buyers, it affects affordability and restricts their ability to buy new homes. Whereas for a seller, it restricts their ability to attract buyers, and they have to wait longer to welcome any new property buyers.
Since 2021, the average mortgage rate has gone up. But lately, in 2022, the Federal Reserve announced new rates for 15- and 30-year fixed mortgage rates. In January 2022, the mortgage rate jumped from 2.8% to 6.8% in October of the same year for a 15-year fixed rate. Whereas for the 30-year plan, it rose to 7.08% in October 2022. This is an insane hike in the rate that ditches affordability.
High Demand of Single Family Homes
The striking demand for single-family homes has risen after the pandemic and is actually rising. The reason for the increase in demand for these types of homes is to stay together in difficult times as well as cope with financial challenges. Managing households individually can break your bank during uncertain times and rising inflation. People are showing an inclination towards buying single-family homes.
There are also other reasons that prompted an increase in demand for single-family units. It includes:
- Less maintenance: These homes usually have few fixtures which hardly need repairs and maintenance.
- More Space: More space means more family members can accommodate. Also these types of units come with extra space of attic, garage, back and front yard.
Decline in Demand for Rental Properties in Cities
As more and more people have shifted to suburban areas and left cities, it has affected the demand for rental properties in the big cities. Rental properties have been affected, both commercially and residentially. It is expected that demand will be slow due to the high rental prices of the property. Due to ongoing inflation and the expected recession, landlords have increased rent prices to maintain their living standards, which has caused trouble for the renters. Due to unaffordability, young people are moving into their families’ homes. It was after the Great Depression that young adults started living in their family homes to cut back on expenses and increase savings.
Buyers Will Buy Regardless of Neighborhood
In 2023, the real estate industry, despite all the odds, might regain its strength and it is unlikely that this sector will crash. In a tight market, buyers will buy whatsoever. It is likely that you will attract multiple offers even if your neighbor is unpopular. Before the pandemic, people tend to be choosy when it comes to buying a property. They had to consider amenities, neighborhood (if it has easy access to the office and schools). But, now the behavior patterns of buyers have slightly changed to buy a property by compromising little flaws.
Annual Home Value Will Increase
Despite a smaller number of available properties and more buyers in a queue, annual home prices will not slow down. After March 2022, the average median price of active listings increased by 11%. This means that the price of homes is only increasing gradually, and 2023 will be a seller’s market.
For buyers, it is not a good indicator as it shakes their affordability due to increased prices. It’s going to be an expensive market for buyers, but patience is the key. They must stick to their budget, expand their search, and keep tight on saving for a big down payment. Though it feels tiring to wait for the dream home to get its keys in your hands, you must keep looking for the home that fits your budget.
Similarly, for the sellers, it is a golden opportunity to make extra money. However, they may ditch their feelings later when they go out for a house hunt. They might not find the desired home within their budget and would need extra money.
Effects of Covid-19 on Real Estate Industry
COVID-19 has triggered almost every sector of the business. The real estate industry is no exception. The rate of interest during COVID-19 was slightly relaxed to cope with financial challenges. The Federal Reserve aided in lowering interest rates to meet economic requirements. But, conversely, after the pandemic, interest rates skyrocketed in a matter of months.
Additionally, the global shutdown of different industries impacted the supply chain of real estate. With disruptions in the supply chain, major development projects were halted by the developers. Some major disruptions that this industry faced were the lack of availability of raw materials, e.g., steel, plywood, and lumber. To get them on site, contractors had to pay three times more money. As a result, it raised construction as well as labor costs.
On the other side of causing delays in the supply chain, US-China tensions also affected this sector. Many companies that make raw materials for construction have halted or completely shut down their operations in the US. It directly affected the manufacturing and production operations in the country.
Impact on Buying And Selling
During and after the pandemic the rise in virtual tours is evident. People’s preferences have changed as they encourage social distancing while viewing a property. This trend has seen a tremendous rise over the course of pandemic. Moreover, the introduction of advanced tech has aided in fast closing and approval processes. But, how actually COVID-19 impacted buyers and sellers? Let’s find out below:
For Sellers:
COVID-19 has been a hot and cold market for home sellers. During the peak of the pandemic, people went completely remote. The global shutdown forced people to stay at home. This has slightly increased the demand for more homes. As many people moved to other states and suburban areas to get bigger family units at a much more affordable price. People want to stay close to their families in times of crisis, which amplified the demand for more housing.
However, the effects of the pandemic have shaken the country. The high interest rate and lack of inventory gave birth to a lack of affordability for buyers. People want to stay in their current homes as they are not likely ready to combat a high mortgage rate for their next residence. More demand with less inventory available is directly proportional to an increase in home prices. Even though homes stay on the market, they are still selling.
For Buyers:
It’s more than a fantasy dream to buy a property after COVID-19 for first time home buyers. Considering the high mortgage rate and rising unemployment, it has nearly become hard for first time home buyers to buy their dream home. The pandemic has changed the preferences of people. People want to save and invest more in health insurance than getting keys to their first home.
Now home buyers wants to live in the homes that meet following requirements:
- Homes must have large outer space
- Big homes (isolation has made people to live with family)
- More practical home layout
- Tech installations (to accommodate remote and hybrid work altogether).
Is This a Good Time to Buy and Sell Property?
To sell your home is completely your decision. It takes a lot of consideration both personally and professionally. However, deciding on the right time to sell your property needs extra vigilance. Despite rising inflation and economic downturn and low inventory, the demand for housing has risen in the past few months. This shows that things are getting normalized.
Local real estate market trends play a key role in deciding whether your property is worth selling or not. Every state has a different market of buyers and sellers. It depends on the state you live in. For example, in some areas it is an ideal time to sell the property or at least you can sell at face value. While in some areas, the prices are falling down fast, so buyers need to wait for the next year.
Best Time to Sell a Property?
According to realtor.com, ideally, spring and summer are the best times or seasons to sell your property. To be specific, the month of April is the hottest time to sell your property. However, as we mentioned earlier, there are many other factors you need to know to sell your house at the right time. Some of the important factors are mentioned below:
Low Interest Rates
Low interest rates compel buyers to buy property, which is advantageous for sellers. More buyers leads to more demands, ultimately leading to high bidding wars. Getting more offers allows sellers to increase the price of the property to get the maximum possible bid.
Low Inventory
When the available inventory is lower than the demand, the property’s value increases. Also, properties tend to sell quicker when the supply is low.
When You Need to Wait?
There are times when you have to reconsider your decision to sell and halt it for the future. There are some scenarios you need to watch out for if you are planning to sell your home. You must not sell your home when:
High Mortgage Rate
You must not sell your property when buyers are struggling to get mortgage loans due to high interest rates. It restricts buyers’ ability to get hands on the property. You must stop listing your home during those times.
Home in Not-Good Condition
You might think that your property is good enough to list it on the market. However, it might need lots of repairs when you see it from the buyer’s eye. You must make sure to condition your home well so that you get the best possible offer.
Upsize Your Property
When the market is hot, it is hard to afford a bigger home or consider upsizing it. You need to wait and save some money to finance your next dream project.
Best Time To Buy a Property?
Buyers markets keep fluctuating in the real estate industry. Over the last few weeks, mortgage rates have fallen to 6.3% for a 30-year fixed plan. This makes it easy for buyers to start their loan approval process. Despite high median home prices, buyers must not lose this opportunity in the form of a lower interest rate.
If your mortgage doesn’t approve for various reasons, e.g., project-based employment, you need to wait until the market gets back to normal.
If you buy property now, you will be able to build your equity just from the time you own the property, despite any property trend in the future. You can also save yourself from fluctuating or even high interest rates in the future.
You can buy property when you check all the boxes mentioned below:
Have a Good Credit Score
Having a good credit score of 720 or above is essential, regardless of time or crisis. For a fast approval process, you need to have this credit score to get the best deal from your lender. Fast processing means a faster approach to buying your own property.
Saved for a Down Payment
You can immediately buy a property if you have saved enough to make a down payment.
When Should You Wait?
Here are possible factors you need to consider when buying a property: You must wait if you notice any of these factors in the market:
Home Prices Are Dropping
If you are residing in a state where home values are dropping, you must cease your steps towards making any buying decision. People who opted to wait for the property to get a little lower are happier now. The prices are comparatively lower than the previous year.
Increasing Supply of Homes
Lower inventory leads to a seller’s market, whereas it becomes a buyer’s market when the inventory increases. When the supply increases, you can choose from many options, and the prices are relatively lower.
Possibility of Recession and Real Estate Trends
The possibility of recession is evident at 65%. Buying a home during a recession is a big risk. It can affect you both mentally and financially. As a general rule of thumb, mortgage rates drop during recessions, as do home prices. The exception of risk stays during that time. This period is also favorable for investing in bonds and stocks, as these precious monetary tools usually outperform during recessions.
If you’re planning to buy a home during a recession, first make sure you can afford a long-term fixed-rate mortgage. If so, you have the financial stability to purchase a home. However, for first time buyers, it may be difficult because lending becomes more difficult during recession periods.
The same rule applies to the seller during a recession. For example, they must ask themselves do they really need to sell the house? Selling a property also comes with certain costs e.g., closing costs. You need finances to move to the next residences.
Analyze Your Real Estate Market
2023 will be a challenging year for the real estate industry due to ongoing inflation and an expected recession. We have seen that inflation has slightly loosen its grip in the past few months, but it is still not over yet. As a result, mortgage rates will see a rising trend, which will make it unaffordable to buy a home. On the other hand, homeowners will gain more equity in their homes due to high prices. So, before you make any buying or selling decisions, you must analyze your local market.
Featured Image: iStock
