The real estate market outlook in May 2023 seems to be heading towards a complete disaster. The spring homebuying season is yet to bloom, and it’s likely to turn out to be a total dud. Mortgage rates have increased by a whopping 15 basis points in April, and pending and existing home sales slumped in March. Although there was a small decline in the median existing-home sales price year-over-year, substantial nationwide price declines are not in the cards.
The tight inventory issues continue to keep prices high, perpetuating affordability challenges for many, especially first-time homebuyers. The nation’s housing supply remains limited and probably will remain so for at least the near future. Those who purchased homes in recent years at record-low interest rates are staying put, contributing to the housing shortage.
Although home prices are not as high as they were in early 2022, the extent to which they will dip in 2023 depends on the housing market region and where mortgage rates go. With persistently high mortgage rates and home prices, buyers and sellers remain at a standoff; thus the real estate market outlook is worsening. The fear of ongoing inflation, bank sector volatility, weakening economic growth, and an impending recession has left many prospective homebuyers feeling discouraged.
The Federal Reserve’s recent decision to raise its key interest rate by one quarter of a percentage point has not helped the real estate market outlook. The Fed signaled that it may pause rate hikes for the remainder of the year should inflation continue to fall. However, a Fed rate hike has an indirect impact on long-term home loans, such as 30-year, fixed-rate mortgages.
The housing market is struggling due to the mixed bag of circumstances. Although home shoppers received some good news with the median existing-home sales price declining, total existing-home sales dipped, and inventory remains at historic lows. Starter homes are still receiving multiple offers, implying that more supply is needed to fully satisfy demand.
Following several weeks of declines in March and early April, mortgage rates have edged higher in recent weeks. If current economic conditions persist, with elevated mortgage rates and home prices amid scarce inventory, the market is likely in for a long, slow climb and a few bumps along the way.
Though the Biden-Harris administration revamped the existing mortgage fee rules to make homeownership “more attainable and affordable for lower- and middle-income borrowers,” the new mortgage fee rules imposed by the Federal Housing Finance Agency have drawn criticism from some housing experts making our real estate market outlook dim. Even though some experts predict a slow recovery may soon be underway, the inventory problem will not be resolved in 2023.
Single-family construction starts have risen for the second consecutive month, and applications for building permits have increased. The latest builder outlook data reflected optimism, but the Federal Reserve’s ongoing rate hikes have made builders reluctant to start new projects that would bring needed housing products to the market.
Due to the ongoing inventory crunch keeping home prices elevated, many economists predict that the housing market is more likely to correct itself rather than crash. Although foreclosures have been edging up since the expiration of the Covid-19 foreclosure moratorium, the likelihood of a housing market crash is low.
Buying a house in any market is a highly personal decision, but it’s crucial to be in a solid financial position before diving in. Predicting what might happen this year is not the best homebuying strategy. Buyers should consider their budget and needs before making any decision.
Sellers should also be prepared, with their financing lined up, a solid understanding of what they can afford, and constant checking of prices and listings. Only the best prepared will be successful in today’s highly-competitive market. The bleak real estate market outlook is therefore a reality which is effecting all service providers across the country.
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