Is 2023 the Year to Buy a House?
Is buying property this year worth it? Or should you hold off?
“We’re Rich!”
When my wife and I checked the Zillow estimate of our house last year, our eyes widened, our saliva glands activated.
“We’re rich!” I thought.
We entertained the idea of selling for a brief, heady moment. Dreams of summer homes and offshore accounts, of deck shoes and Tag Heuers. Then, reality set in.
Zillow estimates are unreliable, but let’s say for the sake of argument that the advertized price was accurate, that the price of our home had risen by nearly a third. So had most homes in our town. So had many homes across America. If prices were more expensive everywhere, what would be the point of selling, expending effort and spending money on fees and moving expenses only to end up with no profit?
Plus, the interest rates doubled last year. Sure, they came down from their seven-and-a-quarter peak in October to a percentage point less, but the interest rate climbed back up to six and a half by the end of the year.
Six and a half percent is not a lot if you look at historical rates, but it’s not great in the context of high inflation and bloated home prices.
We bought our house at a (relatively) good price and locked in a 3.6 interest rate. It made no sense for us to sell.
Is Now a Good Time to Buy?
But what if the pandemic threw a wrench into your plans to buy a home? Is now the right time to revisit a home purchase?
Maybe.
housing prices
One noteworthy indicator is that housing prices have dropped for the first time in a decade. But what will happen this year? Fortune surveyed 27 of the country’s top housing researchers, including banks and lenders. Four expect U.S. housing prices to grow while the remaining 23 anticipate prices to fall further.
Softening prices could present a good opportunity, but of course that’s not the only factor that matters.
interest rates
Mortgage applications were down 13.2% at the end of last week from two weeks earlier, which shouldn’t come as a surprise, since interest rates increased to 6.58% from 6.34%. For a point of reference, the rate was 3.33% at the end of 2021.
Most experts agree that we shouldn’t hold our breath for a return to a sub-4% range, but we should at least look for rate stability.
inflation
U.S. inflation rate was 7% in 2021 and 7.1% in 2022, although inflation did soften after its peak a few months before the end of last year. The Fed, which uses interest rate increases to combat inflation, is expected to raise rates again at the start of the year. Will inflation taper off? That remains to be seen.
What Was the Question Again?
So, is it a good time to buy?
your financial situation
We ended the year with a strong jobs report. While that’s a good sign, it doesn’t speak to your particular situation. It depends a lot on how you answer the following:
Do you have enough for a healthy down payment without emptying out your savings? Is your credit score rising? What’s your household income? What are your expenditures?
uncertainty remains
But me telling you that you need enough money and a good credit score is not what you came for. Everyone knows that. You want to know if market conditions are favorable for a home purchase. Unfortunately, I don’t have a good answer for you: probably not yet.
There are some positive indicators, but we’re really in a wait-and-see kind of situation. What will housing prices do this year? What’s the Fed going to do with interest rates? How will inflation behave?
This year might present some good opportunities for a home purchase, but I would hold off for the time being. In the meantime, check out this Recession Survival Guide to get your ducks in a row.
Visit PabloAndreu.com for more of Pablo’s writing.