Is 2023 a Good Time to Buy a Home? | The Motley Fool (2024)

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Is 2023 a Good Time to Buy a Home? | The Motley Fool? ›

Buyer demand held steady in 2022 even as mortgage rates rose, making homeownership less affordable. And so far, buyer demand has remained fairly strong in 2023. Because 2022 buyers faced a double whammy of high borrowing rates and home prices, many missed the boat on purchasing a home last year.

Homebuyer.com data analysis indicates that, for first-time home buyers, June 2023 is a good time to buy a house relative to later in the year. This article provides an unbiased look at current mortgage rates, housing market conditions, and market sentiment.

Despite what some may think, 2023 is still a good year to invest in real estate, thanks to advantages like long-term appreciation, steady rental income, and the opportunity to hedge against inflation. Mortgage rates are expected to decline, but the housing market is likely to remain competitive due to low supply.

Fannie Mae, Mortgage Bankers Association and National Association of Realtors expect mortgage rates to drop through the first quarter of 2024, by half a percentage point to about nine-tenths of a percentage point. Figures are the predicted quarterly average rates for the 30-year fixed-rate mortgage.

Is House Flipping Profitable in 2023? Yes! If you get the basics right, flipping homes in California is easier in 2023 than flipping homes in 2021's competitive market. You Make Money When You Buy Your Flip: Stick to the home flipper's 70% rule.

Buying a home during a recession can sometimes be a good idea — but only for people who are lucky enough to remain financially stable. If you're thinking about buying during an economic downturn, be sure to enlist the help of an experienced local real estate agent.

A majority of Americans had been reporting it's a good time to buy a house up until 2022. Low inventory and skyrocketing home prices certainly play a part. Home prices were up 38% in April 2023 compared to the same period in 2020, according to Zillow's Home Value Index. Homes on the market are also harder to come by.

After falling in 2023 and 2024, home prices are predicted to plateau in 2025 before rising again at just above the rate of inflation. However, due to the spike in home values from 2020 through 2022 due to record-low mortgage rates, median sales prices will take at least until 2027 to regain the highs of mid-2022.

With mortgage rates declining faster than expected, home prices are likely to remain mostly flat throughout 2024. This will be good news for buyers who have been waiting on the sidelines for a good time to enter the market.

How high will mortgage rates go in 2023? ›

“[W]ith the rate of inflation decelerating rates should gently decline over the course of 2023.” Fannie Mae. 30-year fixed rate mortgage will average 6.4% for Q2 2023, according to the May Housing Forecast. National Association of Realtors (NAR).

“We expect that 30-year mortgage rates will end 2023 at 5.2%,” the organization noted in its forecast commentary. It since has walked back its forecast slightly but still sees rates dipping below 6%, to 5.6%, by the end of the year.

The predictions made by the various analysts and banks provide insight into what the financial markets anticipate for interest rates over the next few years. Based on recent data, Trading Economics predicts a rise to 5% in 2023 before falling back down to 4.25% in 2024 and 3.25% in 2025.

The 70% rule can help flippers when they're scouring real estate listings for potential investment opportunities. Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home.

“Continued inflation, overall higher interest rates, a potential recession and geopolitical tensions will force 30-year and 15-year mortgage rates up throughout 2023, and will bring the two rates closer together as short-term risks rise,” says Dennis Shirshikov of real estate website Awning.com.

Prospective buyers should bring in more than $100K per year before considering a home in the $800K range. Home pricing is tricky business.

Recessions and housing market crashes may cause your house's value to decrease. However, your set mortgage rates won't lower, meaning your monthly payments will be higher than your home's worth. While many may dip into their savings to help pay the steep bills, others may need outside assistance.

Risk of Foreclosure – During recessions job losses increase. If you lose your job or have a reduction in income you may not be able to afford the payment. Now that you are a homeowner you could risk getting foreclosed upon. A foreclosure can negatively affect your ability to buy a home in the future.

Indeed, a 2022 report by ATTOM Data Solutions which analyzed more than 39 million home and condo sales over the last nine years found that May is the worst month for getting a good deal on a house, with a recorded paid premium of over 10 percent on many properties.

What month is the least expensive to buy a house? ›

Generally, home prices are lowest in January because demand is low, inventory is low and fewer buyers are looking for homes. While January might be the best month to get the lowest price on a home, you pick from a smaller selection of homes.

Winter is usually the cheapest time of year to purchase a home. Sellers are often motivated, which automatically translates into an advantage to you. Most people suspend their listings from around Thanksgiving to the New Year because they assume buyers are scarce.

Dealing with unrealistic sellers

Many sellers compare their houses to those in the neighborhood and want to sell them as quickly as others. It's your responsibility to make them understand the real scenario. This is one of the most common problems that real estate markets face.

Chicago, IL MSA: The forecast for the Chicago MSA suggests a moderate increase in housing prices. In May 2023, prices are predicted to rise by 0.3%, followed by a slight growth of 0.1% in July 2023. However, the most significant increase is expected in April 2024, with prices projected to rise by 1.5%.

According to a report, India's real estate market is expected to exhibit a growth rate (CAGR) of 9.2% during 2023-2028. Therefore, FY'23-24 will see a strong foundation as there will be more buyers, and home loan rates will be lower.

Although home prices are expected to improve in the second half of the year, the California median home price is projected to decrease by 5.6 percent to $776,600 in 2023, down from the median price of $822,300 recorded in 2022.

The Bottom Line

Paying off your mortgage early can save you a lot of money in the long run. Even a small extra monthly payment can allow you to own your home sooner. Make sure you have an emergency fund before you put your money toward your loan.

A “good” mortgage rate is different for everyone. In today's market, a good rate could be 6% for one borrower and 8% for another on the same day. To understand what a good mortgage rate looks like for you, get quotes from a few different lenders and compare them.

As of June 7, 2023, the 30-year fixed mortgage rate is 7.25%, the FHA 30-year fixed rate is 7.34%, the VA 30-year fixed rate is 7.08% and the jumbo 30-year fixed rate is 6.40%.

"Returning to mortgage rates of 3% or 4% is not going to happen, in my view," says Yun, who points out that historically rates have been higher. The low rates of 2020 and 2021 were "unique" and those that got them were "lucky," he says.

What will mortgage interest rates be in 2023 2024? ›

The Fed penciled in a 5-5.25 percent peak interest rate for 2023, after which officials see rates falling to 4.25-4.5 percent by the end of 2024.

Fannie Mae expects the 30-year fixed to ease to around 6.1% in the second quarter of 2023, before falling to 5.9% in the third quarter and 5.7% in Q4. And it gets even better than that. By the end of 2024, they expect the 30-year fixed to average 5.2%.

An interest rate forecast by Trading Economics, as of 12 May, predicted that the Fed Funds Rate could hit 5.25% by the end of this quarter - a forecast that has been materialised. The rate is then predicted to fall back to 3.75% in 2024 and 3.25% in 2025, according to our econometric models.

1) Interest-rate forecast.

We project a year-end 2023 federal-funds rate of 4.75%, falling below 2.00% by mid-2025. That will help drive the 10-year Treasury yield down to 2.25% in 2025 from an average of 3.5% in 2023. We expect the 30-year mortgage rate to fall from an average 6.25% in 2025 to 4% in 2025.

Mortgage Interest Rate predictions for May 2024. Maximum interest rate 5.66%, minimum 5.16%. The average for the month 5.45%. The 30-Year Mortgage Rate forecast at the end of the month 5.32%.

The 2% rule is the same as the 1% rule – it just uses a different number. The 2% rule states that the monthly rent for an investment property should be equal to or no less than 2% of the purchase price. Here's an example of the 2% rule for a home with the purchase price of $150,000: $150,000 x 0.02 = $3,000.

If you plan to purchase a flipped home with an FHA loan, you must abide by the FHA 90-day flipping rule. This rule states that a person selling a flipped home must own the home for more than 90 days before home buyers can purchase the property.

In investing, the 80-20 rule generally holds that 20% of the holdings in a portfolio are responsible for 80% of the portfolio's growth. On the flip side, 20% of a portfolio's holdings could be responsible for 80% of its losses.

In addition, during recessions, people with access to cash are in a better position to take advantage of investment opportunities that can significantly improve their finances long-term.

Fannie Mae: Economists at the firm predict that U.S. home prices, as measured by the Fannie Mae HPI, will fall 1.2% in 2023 and another 2.2% dip in 2024. That's a big upgrade from March, when Fannie Mae predicted national home prices would fall 4.2% in 2023 and another 2.3% dip in 2024.

How much did house prices drop in the recession 2008? ›

Prices fell by a record 9.5% in 2008, to $197,100, compared to $217,900 in 2007. In comparison, median home prices dipped a mere 1.6% between 2006 and 2007. Distressed properties, the foreclosures and short sales that have flooded the market, accounted for 45% of all deals.

The first reason why June 2023 is an excellent time to buy a house is that mortgage rates are falling back into the 6s and are likely to hold. According to Freddie Mac, 30-year fixed-rate mortgage rates averaged 6.57 percent to open the month, and dropped 0.375 percentage points when Congress reached a budget deal.

Despite what some may think, 2023 is still a good year to invest in real estate, thanks to advantages like long-term appreciation, steady rental income, and the opportunity to hedge against inflation. Mortgage rates are expected to decline, but the housing market is likely to remain competitive due to low supply.

As a general rule, you should have the home for at least 90 days before you sell it. FHA, VA, USDA, and conventional loan buyers will have the easiest time getting approved if you hold the title for at least 90 days.

The average interest rate for the benchmark 30-year fixed mortgage reached 7.08%, as of Monday. However, with the economy expected to cool and possibly dip into a recession, many recent forecasts expect rates to drop to 6% or below in 2024, including a Fannie Mae projection of 5.2%.

The Fed penciled in a 5-5.25 percent peak interest rate for 2023, after which officials see rates falling to 4.25-4.5 percent by the end of 2024.

30-Year Mortgage Rate forecast for December 2024. Maximum interest rate 4.52%, minimum 4.21%. The average for the month 4.33%. The 30-Year Mortgage Rate forecast at the end of the month 4.39%.

A year ago, Americans were right on the nose predicting where mortgage rates would be 12 months later. If they are right again, rates should surpass 8% by this time in 2024.

After home financing costs nearly doubled in 2022, some relief is in sight for potential homebuyers in 2023. The interest rate for a 30-year fixed-rate mortgage in the U.S. is expected to drop to 5.25% by the end of this year, according to a forecast by the financial services website Bankrate.

However, what we can generally say is that if the economy does spiral into a nasty recession in 2023, as some economists are predicting, it's likely that interest rates will be cut to deal with this.

Do we think interest rates will go down in 2023? ›

When it becomes more attractive to save money, consumers tend to spend less of it. But the Fed isn't done fighting inflation. And because of that, consumers should not expect interest rates to drop in 2023. However, rates may also not climb much from where they are today.

Are mortgage rates expected to rise or fall during 2023? The consensus is that mortgage rates will gradually decline throughout the year, even if interest rates go up. Some predict that fixed rates could fall below 4 per cent by early 2024.