Should You Buy a House in 2023?

Is this the year to buy, or should you wait until the market shifts a bit? Experts weigh in on the key factors aspiring buyers should know this year.

This time last year, headlines related to the housing market pointed to a challenging market for buyers. Home prices were high, mortgage rates were low, and buyers were purchasing properties sight unseen in one of the most competitive markets in recent memory. But, even then, experts cautioned that a crash or recession was likely.

Now, rates have grown substantially, while home prices remain high. At the same time, the time for-sale homes spend on the market is increasing, and competition is lessening in many areas. Outside the housing market, the cost of living is increasing and layoffs are hitting all industries. Coupled with higher mortgage rates, these factors may mean that it’s not such a prime moment to buy a home—but with careful consideration and planning, aspiring buyers with solid financial footing can still make a responsible purchase.

“While prices have dropped from where they were at their peak this time last year, they are still above 2021 prices in many markets,” says Lindsay McClean, CEO of online real estate tech platform Homelister. “Mortgage rates have stabilized a bit in December, and offer activity seems to be resuming as buyers are slowly coming back to the table.”

A 2022 report by home insurance company Hippo shows that 78% of U.S. homeowners have had regrets about their home purchase in the past year, and 63% of responding homeowners said that knowing what they know today, they would have waited longer to buy. In short, buying a home is no small decision even in a buyer’s market. Now, with less-than-ideal conditions for some buyers, it’s easy to wonder whether it’s a good idea to buy a home in 2023, or if it’s better to wait for a better market.

These experts have advice for those trying to decide whether to buy a home in 2023 or wait it out—read on for their insights on what led to our current market, how buying conditions stand now, and what potential buyers need to know.

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The Market of the Recent Past

Perhaps the biggest shifts following 2020 and 2021 have had to do with interest rates and inventory.

“The Fed cut rates to 0 during the pandemic, causing buyers to rush to buy homes and refinance homes. The extremely low interest rates for an extended period, along with monetary stimulus, drove up inflation, causing the Fed to increase rates to the highest we have seen in 15 years,” says Carol Horton, chief marketing officer at Kindred Homes. “So, in essence, we are still seeing the effects of the pandemic on the housing market. It has created wild swings in inventory and pricing.”

In 2020 and 2021, buyers scrambled to make competitive offers above asking price to snag properties they’d never seen in person, and investors flooded the market to capitalize on low interest rates. Many homeowners began to sell to take advantage of high prices.

Since then, interest rates have risen again, and inventory has stabilized.

“Inventory numbers for new construction homes were at zero or near zero in early 2022,” Horton says. “As the year went on and inflation spiked to record highs along with rising interest rates, contract cancellations proliferated, creating more supply available in the market. However, even with the larger inventory numbers, there is still a ‘housing shortage’ in America. If the affordability matches the demand, I believe the inventory numbers will plummet again.”

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Where We Are Now

Horton believes most of the country is now in a buyer’s market.

“The shift happened sometime in August [2022],” she says. “The switch to a buyer’s market is evident by the longer days on the market for homes coupled with price reductions on homes. Some markets are more insulated from the housing slowdown, but still see a decrease in sales.”

In Florida, Daniel Ekerold, real estate agent with Douglas Elliman in Palm Beach, says the market is still favoring sellers because inventory remains low. That’s because real estate is booming for investors and developers looking to buy rental and vacation properties in destinations like Florida, especially while interest rates remained low. Interest rates have risen since, but demand in certain areas and among certain buyers continues.

Elsewhere in the country, millennials continue to enter the housing market, many for the first time.

“Millennials continue to be the largest buyer segment in the market today. The millennial buyer was hesitant to buy homes at a younger age due to the 2008 Financial Crisis,” Horton says. “The pandemic drove low interest rates and pushed their generation towards homeownership in record numbers.”

The Market Ahead

Redfin deputy chief economist Taylor Marr expects about 16% fewer existing home sales in 2023 vs 2022. Marr believes potential buyers are still grappling with affordability, high mortgage rates, high home prices, inflation, and a potential recession.

“People will only move if they need to,” Marr says. “When buyers don’t want to buy, sellers don’t want to sell. Low demand, plus the ‘lock-in’ effect of homeowners with ultra-low mortgage rates staying put, mean new listings will continue to decline year over year during the first half of 2023."

On top of this low demand and low supply, Horton predicts that mortgage rates will continue to increase.

“Mortgage rates will likely trend slightly higher over the next few months due to additional rate increases from the Fed. However, they shouldn’t get into the double digits, as some people fear,” she says.

But ask about a potential recession and predictions remain mixed.

“Some feel a recession is unavoidable,” Horton says. “However, I believe we are currently in a recession and will likely see a rebound in late 2023.”

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Is Now the Right Time to Buy?

If you’re ready to buy, you might put your mind at ease by simply buying a home when you’re ready, instead of trying to predict the perfect time.

“Historically, there have always been cycles in the market,“ Ekerold says. “Eventually there will be a large correction, but trying to time the market is a game for developers and investors, not for buyers of long-term primary residences. It could be imminent or in 5 years’ time. Generally, it is best to think outside of the herd mentality when figuring out the best time to purchase or sell.”

To that end, Ekerold says each potential buyer should consider their net household income, the cost of owning property vs. leasing it, and the amount of time they plan to own the home before making an offer.

Experts agree that if you’ve saved up for a down payment and you’re ready to buy, now is as good a time as any—especially if you’re currently renting. While we may still see prices drop, you won’t save yourself much cash as you continue to pay rent.

“I always think it’s an excellent time to buy a home if you are in the market and financially able,” Horton says. “Real estate has always been a solid long-term investment play, and everyone needs a place to live.”

Marr also points out that some changes in the market could mean you aren’t able to buy a house now, even if you want to.

“House hunters may need a higher credit score or lower debt-to-income ratio to qualify for a mortgage as lenders tighten credit standards due to rising unemployment,” Marr says. “That said, those who do qualify may pay less in closing costs as lenders offer fewer products—which allows them to lower fees—to attract customers during the slowdown."

Additionally, homes in certain parts of the country are harder to qualify for these days as homeowner insurance costs also rise.

"Some Americans will be priced out of climate-risky areas like beachfront Florida and the hills of California because of ballooning insurance costs. We expect disaster-insurance rates to continue rising next year (and beyond), rendering housing in some areas more expensive,” Marr says.

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