2023 New Year’s resolutions for buyers
Every year, Ilyce and Sam offer their readers New Year’s resolutions for home buyers, sellers and their personal finances. These are their 2023 home buyer resolutions.
My, how the tide is shifting for home buyers, sellers, renovators, investors and owners.
At the end of 2021, we wrote that “COVID-19 is a trend accelerator.” When it came to buying a home, the pandemic produced the lowest interest rates in history, the fastest jump in interest rates in history, and the fastest rise in home prices. It also exacerbated an ongoing housing shortage.
In June, 2021, the National Association of Realtors (NAR) declared a U.S. housing shortage of between 5.5 and 6.8 million units. In Harvard University’s annual State of the Nation’s Housing report, sponsored by Habitat for Humanity, the U.S. housing deficit is estimated to be 3.8 million units. NAR debuted a Housing Shortage Tracker, which estimates the U.S. is still short around 5.5 million homes.
It doesn’t look like the housing shortage is getting better anytime soon, according to the Counselors of Real Estate math: “The current annual pace of new residential supply is about 1.6 million units per year based on construction starts, which is close to the estimated demand from new households of 1.1 to 1.3 million-plus obsolescence/demolitions of 0.2 to 0.4 million.”
In other words, if the U.S. produced 1.6 million new units, it would just about cover demand. Unfortunately, according to the latest Census figures, an estimated 1.49 million new homes will be completed in 2022, adding to the housing shortage.
As the pandemic finishes the third year, the real estate industry has experienced a year of “never befores.” We’ve never before seen interest rates jump up as quickly as we have this year. On Dec. 23, 2021, mortgage interest rates were 3.05% according to the Federal Reserve Bank of St. Louis. Mortgage interest rates hit a high for the year of 7.08% on Nov. 10, 2022. The last time interest rates were this high was April 5, 2002, when they touched 7.13%. And that, presumably, is for those with the best credit scores. Interest rates for buyers with an average credit score might have locked in at even higher rates.
We’ve also never before seen home values skyrocket in such a short period of time. “U.S. house prices appreciated a remarkable 94.5% from first quarter 2013 to second quarter 2022 — a 60.8% rise after adjusting for inflation. The magnitude of the increase is even larger than that of the preceding housing boom, from first quarter 1998 to second quarter 2007,” wrote Dallas Fed economist Enrique Martínez-García. By July 2021, housing prices were increasing at an annual rate of 19.3%, according to the Federal Reserve Bank of Dallas.
And another never before: Home prices rose in 2022 while interest rates jumped. Typically, when interest rates go up economists expect home prices to go down. According to NAR, home prices rose in 98% of metro areas in the third quarter of 2022, rising 8.6% to $398,500. The monthly mortgage payment on a typical existing single-family home with a 20% down payment was $1,840 — up 50% from a year ago.
However you look at it, home buyers and owners have enjoyed two decades of extremely low interest rates, which fueled home buying power and, for many, home equity. Nationally, home prices rose more than 40% during the pandemic, the fastest pace in history, Martínez-García added, but could fall as much as 20% in a “pessimistic” scenario.