The Search for Affordable Housing--Tips for 2023

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Real Estate

Hi!  Welcome back to #FabulousFriday!  As interest rates have continued to climb throughout the year, buyers remain cautious about committing to home purchases.  There are several components involved in affordable housing--home prices, mortgage rates and income levels.  All have been affected by the current economic market conditions throughout 2022.  Successful home buyers will continue to capitalize on a few trends that have emerged in 2022.  Here are some things that have materialized and things to watch for in 2023:

1)  Lawrence Yun, the National Association of Realtors chief economist and senior vice president of research, forecasts, "U.S. GDP will grow by 1.3%, roughly half the typical historical pace of 2.5%.  He expects the 30 year fixed mortgage rate to settle at 5.7% as the Fed slows the pace of rate hikes to control inflation.  He noted that this is lower than the pre-pandemic historical rate of 8%."  

2)  Rental prices are expected to rise between 5 and 6.3% in 2023, following a 7% increase in 2022.  U.S. Renters will continue to face challenges from a limited supply and excess demand in the coming year that will keep the upward pressure on rent growth and prices.  In addition to rising housing costs, high mortgage rates and slowing construction, may keep potential buyers in the rental market a bit longer.  This may have a direct impact on rising costs in the rental market.  However, this may also indicate that purchasing is a better financial option than continuing to rent in the long term.  

3)  Cross-Market Interest Benefits Affordable Areas throughout the country.  Remote work and soaring home costs keep the search for affordable housing alive and well in smaller affordable markets.  This will affect higher priced areas and give a boost to price on homes in lower cost markets, in essence decreasing the gap between these two segments of the market.  This trend may become significant if companies continue to expand operations into smaller markets leading to higher local wages in affordably priced areas.

4)  It is more important than ever to explore all your options for the best rate and price for your particular situation.  With mortgage rates and home prices both high, exploring one's options to find the best rate will be important for home buyers in 2023.  In fact, an increasing number of shoppers are open to adjustable rate mortgages to decrease their initial monthly payment.  Taking out an adjustable rate mortgage may put the home of your choice back within your shopping opportunities.  However, shoppers should be aware of the terms before choosing one of these mortgages.  To make the decision, consider the pros and cons of an ARM.  Look not only at the initial monthly payment, also review how the rate is capped and what the maximum monthly payment could be.  Your mortgage loan officer can review these options with you to determine if this strategy is suitable for your family and purchasing goals.

5)  Home prices may continue to increase in certain areas.  This may be due to pre-pandemic interest rates.  Many existing homeowners, especially those who purchased pre-pandemic are reluctant to re-enter the housing market.  The idea of giving up interest rates in the 2-3% range is a difficult decision to make.  People who locked into an exceptionally low rate may have little incentive to sell their home when the rates are higher.  Refinance rates surged in 2022 which made them an unpopular option with home owners.  Instead, many property owners turned to home equity loans and used their home equity to make purchases.  This may continue to contribute to the limited supply of homes available for sale in 2023. 

Check back next Friday for more important real estate tips and tricks.  See you soon.  Warmly, Susan