The real estate market is always evolving and 2023 is poised to bring some interesting changes. With higher mortgage rates, changes in demographics, and shifts in buyer preferences, real estate investors and agents need to understand the key trends that may impact the housing market this year.
Rising mortgage rates
The most significant real estate trend for 2023 is raising mortgage rates. The average 30-year fixed mortgage rate reached over 7% in late 2022 before falling back to around 6.5% to close out the year. However, experts predict rates in 2023 as the Federal Reserve interest rates to fight inflation. While this creates a buyer’s market with more negotiating power, it also results in sellers needing to price their homes competitively and strategically.
Slowing down of the market
The rapid home price growth seen during the pandemic slowed considerably during the second half of 2022. This trend is expected to continue through 2023. Double-digit price gains will likely give way to single-digit appreciation or even declines in some markets. The slowing market means fewer bidding wars and houses flying off the market in days. For buyers, this creates more selection and negotiation power. Sellers need to price appropriately and strategically market their homes. A slower market benefits investors too, with potentially higher rental yields and less overheated competition.
Continued low inventory
The market is cooling down, and inventory levels remain relatively low, especially compared to pre-pandemic years. Inventory shortages were a huge driver of home price gains in recent years. In 2023, inventory may improve slightly but will still be constrained. Several factors contribute to this, including homeowners staying Montana Real Estate MLS put longer to avoid higher mortgage rates, institutional investors keeping properties, and ongoing new construction backlogs.
Increase in first-time homebuyers
First-time homebuyers are set to return to the market in 2023 after being largely priced out during the ultra-competitive pandemic years. Their participation slowed significantly in 2022. Rising rents, remote work flexibility, and the desire to stop “throwing money away on rent” will motivate more first-timers to buy despite higher rates and prices. Investment property purchases may slow, creating more inventory options for first-timers. However, affordability challenges and stricter lending standards will remain hurdles.
Return of suburban appeal
During the pandemic, home prices rose more dramatically in suburban and rural areas as buyers sought more indoor and outdoor space. In 2023, some of these pandemic real estate trends could reverse as offices reopen and urban amenities appeal again. Younger millennials and Gen Z in particular may shift back to downtowns and walkable neighborhoods. However, the flexibility of remote and hybrid work means suburban appeal will remain strong too. People’s housing priorities have changed, focusing more on home offices, yards, extra bedrooms, and proximity to parks and trails. Both urban and suburban markets should see continued demand.
Increasing demand for turnkey properties
To take advantage of the cooler market, buyers may seek out more move-in-ready, turnkey properties in 2023. Turnkey properties have already been renovated, staged, and updated by sellers, so they offer a quicker, hassle-free buying process. Buyers want to avoid taking on major renovations or repairs in a high mortgage rate environment. The demand for contemporary, renovated homes with little work will be high. Smart sellers will invest in sprucing up and modernizing their homes before listing.