Price hikes are starting to ease off, and some living costs may even go down this year.
Key points
- Inflation seems to be slowing, and some things could start to get cheaper in 2023.
- The cost of real estate, rental, cars, and gas could fall, at least a little.
- Don't get too excited about potential price drops, as there's still a lot of uncertainty about the economy.
It's fair to say that 2022 was the year of sticker shock, shrinkflation, and a bunch of other words that described the impact of sky-high living costs. So far in 2023, it looks as if inflation is slowing -- though it's still far from normal levels. Plus, as anyone who's bought eggs recently will tell you, price changes don't impact everything equally. December data from the Bureau of Labor Statistics showed that the price of food was up over 10% on the previous year, where used cars and trucks fell by almost 9%. Here's a look at a few items that may go down in price in 2023.
1. Real estate
After some extraordinary years for the housing market, 2023 might be the year that prices start to fall. I say "might" as there's still a shortage of available homes and nothing is guaranteed. National Association of Realtors (NAR) Chief Economist Lawrence Yun said, "Markets in roughly half of the country are likely to offer potential buyers discounted prices compared to last year."
According to the NAR, December's median home price of $366,900 was up 2.3% on the previous year. It's the longest-ever streak of year-on-year increases, with 130 months of price rises. However, given that the low mortgage rates that partially fuelled the boom are behind us, many researchers think home prices may come down in 2023.
2. Rental costs
There's good news for renters, many of whom have struggled to cover recent rent hikes. Housing economist Tom Lawler thinks it would not be unreasonable to expect an "actual decline" in rental prices. Lawler, who spent over 20 years working for Fannie Mae, thinks that not only will rent growth slow, but that costs could actually come down.
He points to the combination of the crazy increase in rental costs we've seen, coupled with a likely increase in the number of rental units on the market. For him, both factors point to a decline in rental costs. Per Business Insider, rental costs are already starting to fall in some parts of the country. Construction of new rentals continues, which could lead to excess supply and cause prices to fall.
3. New and used cars
There's a common thread to this article: Costs that increased dramatically during the pandemic are starting to come back to Earth. That includes the car market bubble -- for both new and used cars. JPMorgan predicts that prices for new cars could fall between 2.5% and 5% in 2023, while used cars could drop between 10% and 20%.
The thinking is that some of the factors, such as shortage of chips and supply chain issues, will improve. One note of caution, though: Rising interest rates mean auto loans are getting more expensive. The sticker price of a car should fall, but this could be offset by higher auto loan costs.
4. Gas
If you're a motorist, don't hope for miracles at the pump this year. Gas prices will likely fall a little, but given how high they'd gotten, that decline will only ease the pressure on your wallet so much. Patrick De Haan, head of petroleum analysis at GasBuddy, warned, "2023 is not going to be a cakewalk for motorists."
According to GasBuddy's 2023 Fuel Outlook, the average cost of gas could fall $0.50 from last year, but at $3.49 a gallon, it's still going to eat into our budgets. The study predicted the average American would spend $2,471 next year on gas, down $277 from 2022. We've seen improvements in refinery capacity, but Russia's invasion of Ukraine is still a significant factor.
Bottom line
There could be light at the end of the tunnel price-wise for consumers this year. Unfortunately, there's still a lot of economic uncertainty, and it looks as if the cost of some essentials -- such as groceries -- could continue to increase. Plus, if we do enter a recession, as many economists predict, it may be harder to maintain your income.
That means 2023 is still a year where you might want to keep your spending under control and ensure you've got enough emergency savings to handle the unexpected. Having three to six months' worth (or more) of living expenses socked away in a savings account could cushion you against further inflation, job loss, or other financial crises.
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