Published By Barbara Marquand Jan 12, 2023
https://www.nerdwallet.com/article/mortgages/buying-a-house-whats-changed
Well-priced homes in good condition are selling fast, but buyers have some negotiating room.
Despite elevated mortgage rates and a continuing shortage of homes for sale, the 2023 market has some bright spots for buyers.
The frenzied competition of the past few years has settled down, home prices are stabilizing, and properties are staying on the market a little longer.
“It’s not as crazy as it was,” says Trevor Gearin, a real estate agent with Century 21 McLennan & Co. in Methuen, Massachusetts. “Six months ago, the buyers didn’t have a chance to think. Now we’re seeing buyers being able to negotiate a little.”
If you’re thinking about shopping for a home, here’s what to expect and how to approach the market.
Home prices flattening
After big gains in the past three years, home prices are expected to stay flat.
The National Association of Realtors, or NAR, predicts median existing home prices will rise just 0.3% in 2023 — a stark contrast from the 9.6% year-over-year increase in 2022 and eye-popping 18.2% jump in 2021. Existing homes are those that were owned and occupied before going on the market. The NAR projects prices for new homes to creep up 1.3% in 2023 after double-digit gains in the past two years.
About half the country may see small price increases, while the other half may see slight declines, Lawrence Yun, NAR’s chief economist, said in a press statement. “However, markets in California may be the exception, with San Francisco, for example, likely to register price drops of 10 to 15%.”
Buyers already have more choices in some markets, but the supply of homes is still tight. In October, there was a 3.3-month supply of homes for sale, meaning it would take a little over three months for all available homes to sell at the current pace. In October 2021, there was a 2.4-month supply — but a balanced market has about a five- to six-month supply.
Buyers have more negotiating room
Sellers can’t call all the shots the way they did a year ago.
“It’s still a neutral market in some areas, but it’s definitely shifting toward the buyer’s benefit,” says Ramez Tabri, an agent with Century 21 Real Estate Alliance in the San Francisco Bay Area. “There are really good deals to be had.”
Some markets still favor the seller, but even there, buyers are standing firmer. For example, fewer buyers are giving up on home inspections, as many desperate shoppers did last year to win bidding wars. Some buyers are even getting sellers to pay some of their closing costs.
“That’s something that a year ago was unheard of,” says Nate Johnson, president of Real Estate Solutions at RedKey Realty Leaders in St. Louis.
Johnson says St. Louis is still a seller’s market, and well-priced, well-maintained homes continue to sell fast. But other properties are sitting on the market longer, and premium properties are seeing fewer offers. “A year ago, a property may have gotten 10 offers,” he says. “That same property is going to get three or four offers.”
Mortgage rates stabilizing
Mortgage rates more than doubled in 2022, with the 30-year fixed-rate mortgage rising from about 3% at the beginning of the year to more than 6% in December.
The 30-year fixed is expected to average from 5.2% to 6.8% in 2023, according to recent forecasts by Fannie Mae, Freddie Mac, the Mortgage Bankers Association and the NAR.
The Federal Reserve, which increased the federal funds rate by 4.25 percentage points in 2022 to quell inflation, isn’t done raising rates. But it has stepped off the gas a little. The most recent increase in December was 0.50%, down from previous 0.75% hikes. Many lenders had built that bump into their rates, so economists don’t predict a big jump as a result of the Fed’s latest action.
Tips for buying a house in 2023
Here’s how to prepare and compete in the market.
Get your finances in order
Take a comprehensive look at your finances six to nine months before you start home shopping, recommends Eileen Derks, senior vice president and head of mortgage at Laurel Road in New York.
How much can you set aside for a down payment? What’s your budget? How much house can you afford to buy? The key is to own your home and not feel like the home owns you, Derks says.
Review your credit reports and correct any errors, and check your credit score. Pay bills on time, and pay down debt to elevate your score and reduce your debt-to-income ratio. Lenders offer the best mortgage rates and terms to borrowers with high credit scores and low debt-to-income ratios.
Schedule a free consultation with a loan officer, suggests Dan Hanson, executive director in market retail at loanDepot, headquartered in Irvine, California. A mortgage professional can let you know how your finances stack up and what you can do to improve your financial profile.
Understand mortgage options
“A lot of people still think they need to put 20% down,” Hanson says. “That’s not true.”
FHA mortgages backed by the Federal Housing Administration require only 3.5% down, for instance, and VA mortgages for veterans and active-duty military members require no down payment. Some conventional loans require as little as 3% down. And most states have down payment and closing cost assistance programs for first-time home buyers with moderate incomes.
There are fixed-rate and adjustable-rate mortgages, renovation loans for fixer-uppers and many other options.
Check out lender websites to learn about the choices.
Shop mortgage lenders
Some lenders offer a broad range of mortgages, while others specialize. Look for lenders that offer the types of mortgages you’re looking for, and apply with more than one to compare.
Don’t check just the interest rate. Look at the APR, or annual percentage rate, which includes the total cost of the loan, Derks says.
Compare loan estimates from different lenders line by line, Derks adds. The loan estimate, a standard document lenders must provide after you apply, details rates and fees, estimated closing costs and your projected monthly mortgage payment.
Hire a good real estate agent
“Having a quality, talented Realtor on your side as a home buyer is going to really help you get across the finish line,” Johnson says.
A real estate agent will help you find suitable properties, craft offers and negotiate with sellers.
“There is more to it than just the money,” Johnson says. “There are a lot of other terms and conditions.”
For example, being flexible with the closing date or letting the seller stay in the property for a few days after closing can help get an offer accepted in some cases.
Look for an agent with deep experience in your market. Ask for referrals from people you trust, interview a few agents and check references to find the right fit.