As the U.S. economy is continuing to experience inflation, the federal funds rate and mortgage rates have caused some concern for the real estate market. As we head into the new year, here is what we are anticipating seeing for the real estate market as we evolve through this inflation period.
With another 50 points added to the federal funds rate on December 14th 2022, (which has had an increase by three percentage points since the start of 2022), mortgage rates have followed suit with an overall increase of 3.25 percent for 2022. However, with the highest mortgage rates of the year being in the end of October, there has since been a slight stabilization in mortgage rates for the end of 2022.
Heading in to 2023, with mortgage rates trending down in the past six weeks, we anticipate that mortgage rates will continue to stabilize after having historical low rates in 2020 and 2021. We are sure there will be some hikes in the rates throughout this next year, but what we are anticipating for any home buyers and sellers for the new year is a normalization in the market as we continue to bounce back from the precedented times of the COVID pandemic.
As RE/MAX CEO Nick Bailey stated in his statement in October about the real estate market and the interest rates, “Regardless of the macro environment, the numbers, inflation, rates and all of that, there’s something that happens every year – people buy and sell houses. It’s driven by life events.”
If we follow demographic trends, there is still a large demand for housing. According to the National Association of Realtors, millennials represent forty-three percent of homebuyers. Eighty-one percent of the younger millennial homebuyers purchased homes for the first time in 2022. The Gen-Z generation is right on the home-buying tail of millennials.
With the statistics of the demographics being what they are and rates beginning to somewhat stabilize, we believe that the 2023 real estate market will thrive through the interest rates rising. We anticipate that buyers are going to have a choice on homes instead of having to over-offer and compete against 25 other buyers on a home they had to rush on deciding on. Buyers will now have less stress and more time to think through their home-buying decision. As sellers will be more eager to have their home off the market, buyers will continue to have more of an opportunity to negotiate with the sellers as they have at the end of the 2022 season.
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