What the 2023 real estate market will look like has been a hot topic of conversation recently. It affects everyone, from first-time buyers and sellers, all the way up to seasoned economists. But what exactly is going on with the market right now?
With all of the statistics and confusing financial language, it can be a hard topic to understand. Let’s break it down, piece by piece, and take a closer look at what the real estate market will look like by the end of 2023.
Table of Contents
How Does the Housing Market Work?
Every day, houses are bought and sold throughout the country. In the financial world, houses are considered a real asset because they have inherent, physical worth. The value of real assets is ever-changing since their worth is affected by a multitude of outside factors.
Houses are illiquid, which means that they are not easily tradable for cash. There are steps you must go through before selling them. If you do not, there is a substantial loss in value. These can be things such as minor repairs, repainting, or anything that contributes to the overall value of the house.
The price of anything in our economy has to do with supply and demand. If the supply for a good is high, and the demand for it is low, that good will be priced low. If the demand is high and the supply is low, the price will be high.
So, if there are a lot of people looking to buy houses, but not a lot of people looking to sell, the prices will be higher. If a lot of people are looking to sell, and fewer are looking to buy, the prices will be lower.
What Affects the Housing Market?
When the economy is doing well and people are steadily employed, more people have the financial means to purchase houses. When the economy is struggling, people may not have the ability to purchase property. So, the state of the housing market is directly related to the economic welfare at the time.
The Federal Reserve, more commonly known as the Fed, is in charge of the nation’s economy. They can change interest rates, making it more or less expensive to borrow money. They make sure the economy is running smoothly, and take measures to prevent it from growing too quickly. Essentially, their job is to make sure the financial system is stable.
Government policies can also play a role in the housing market. Tax incentives can encourage people to purchase property, making the market more active. Stricter regulations on who qualifies for a loan can make the market slow down, as fewer people will be able to borrow money.
What Does the Real Estate Market Look Like in 2023?
According to Zillow’s housing market forecast, values of homes will rise by 5.8% by the end of 2023. House sales have gone down from 2022 to 2023 by 17%.
House prices have been on an upward trend for the past couple of years, and they have continued to rise in 2023. The national average interest rate is currently 7.80% for a thirty-year fixed loan. This has risen from 6.13% in June of 2023.
So, prices of houses are going up, and so are interest rates. This makes it more difficult for people to purchase houses, thus the decline of homes purchased from 2022 to 2023.
What Makes the Housing Market Crash?
The housing market crashes when prices consistently rise, and then suddenly drop. This can financially hurt those who have recently bought a home at a high price and are forced to sell it at a much lower price.
So, what causes a crash? There are a variety of things that can lead to a crash, but it all boils down to supply and demand. Let’s look a little more in-depth at the reasons behind a crash, and how supply and demand play a role in each.
Overinflated prices
Over the past couple of years, houses have been very expensive. However, a lot of people were still purchasing houses, which is why the prices have remained so high.
What would happen if people were to stop purchasing houses? No matter the reason, whether that be an inability to pay, or a decision that the houses are no longer worth the higher prices, the prices would have to go down.
This ties in to supply and demand. People are not willing to pay the high prices anymore, so there are less buyers. In fact, some may decide to sell their homes, creating even more supply. Demand goes down, and the prices go down along with it. This can cause prices to fall rapidly, and that’s when the “crash” happens. This can create problems for both buyers and sellers.
Economic Struggles
If people are unemployed, or living on a reduced income, they are less likely to make big purchases. In fact, even those who already own homes may not be able to afford to keep them.
If a person fails to make their mortgage payments, the lender can take the house away. This is called foreclosure.
High rates of foreclosure mean that there will be a surplus of houses on the market. This increases the supply, which will lower the prices.
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Interest Rates
When the Fed raises interest rates, it becomes more expensive to borrow money. When it is more expensive to borrow money, fewer people want to do it. This reduces demand for houses, and the prices are reduced along with it.
Speculative Investment
Speculative investment is when purchasers buy a home, with plans to sell it at a profit later. This is commonly known as flipping a house.
Since these purchasers increase demand, the prices can go up as a result. If the investors find that the prices do not continue to rise, they may sell the properties prematurely. This can lead to a price drop, as it increases supply.
Oversupply
If there are too many houses on the market and not enough demand, prices will be forced down. Sellers will be competing for buyers, so they will attempt to make their prices as attractive as possible.
Tightened Lending Standards
There are a variety of checks that banks run before allowing people to take out a loan. If these standards are raised, such as requiring a higher credit score, not as many people will qualify for loans. If fewer people can get loans, the demand for houses will go down.
Government Policies
Government policies are the rule book for the housing market. If the rules favor those purchasing houses, such as reduced taxes, more people will want to buy a house. If the rules disfavor those purchasing houses, such as tightened lending regulations, fewer people will want to buy houses.
Basically, it all ties back to supply and demand. Many factors affect supply and demand, and these directly influence the housing market. As supply increases and demand decreases, prices fall. As supply decreases and demand increases, prices rise.
Will the Housing Market Crash in 2024?
While no one can say for sure what will happen in the future, predictions can be drawn from patterns we have seen in the past. While the prices of houses have been consistently rising over the past few years, economists have said they do not expect a crash in 2024.
Experts do expect the market to “cool off”, meaning that the overall market will slow down. The prices may continue to rise, but at a slower rate than they have been in recent years. There will be fewer buyers and houses will stay on the market longer.
Making Sense of It All
So, what does all of this look like for the real estate market in 2023? Right now, the prices of houses are at a historical high and have been rising rapidly. This has created some concern that we are headed toward a recession and that the housing market will crash.
However, the experts do not expect this to happen. They expect rates to begin to rise more slowly, and the housing market as a whole to slow down. The market will be challenging for those entering it in 2024, but with the right tools, one can successfully navigate it.
Hannah Boland is an undergraduate student at the University of North Carolina Wilmington. She is studying writing and criminology with plans to go into a Journalism career. In her free time she enjoys surfing, kayaking, and being out in nature.
