Experts agree: 2023 will be a bit easier on home buyers, but only those who can still afford to be in the market.
Surging mortgage interest rates were the big story in 2022. Rates doubled for the first time in a single year between March and September 2022, knocking buyers out of the market, causing others to lower their price range, and dampening activity altogether. Rates have mostly crept downward since then and are widely predicted to continue to slip in 2023.
Shant Banosian, executive vice president of sales at Guaranteed Rate, said that given that mortgage interest rates tend to follow inflation, he expects good news on that front from the Federal Reserve.
“I think we’ll see rates continuously drop over the next four months,” Banosian said. “There’s a pretty good possibility that we’ll go from the average 30-year fixed-rate in the 6s we’re at today to the high to mid-5s by April or May.”
Since many sellers are also buyers, that’s good news for everyone.
But there’s also bad news.
“In 2021, nearly 101,000 homes sold in Massachusetts,” Lamacchia said. “In 2022, it looks like it’s going to end up between 82,000 and 86,000, which is about a 17 percent drop. In 2023, I predict the total number of home sales will be below 80,000. Look at the inventory. In 2008 at this time, we had 50,000 properties on the market. Today we have about 9,500.”
He said some homeowners who want to trade up or downsize simply won’t because their current mortgage rate is 3 percent or less and a new one would be more than 6 percent.
Even if they could afford it, Lamacchia said, the difference becomes a mental block.
“We have decreased seller demand as I’ve never seen,” he said. “They don’t want to give their rates up. They throw their hands up. Eventually, everyone has to move, but I think they’re going to be put off for most of 2023.”
His advice to home buyers: The market has changed. Be very selective about the professionals you work with.
“Being an expert matters again,” he said. “You’ve got to hire the right company. You need to work with realtors and mortgage companies that can get you advantages over other buyers.”
Everybody interviewed for this story agreed that the inventory of homes for sale is going to remain historically low. According to Nadia Evangelou, a senior economist and director of forecasting for the National Association of Realtors, we’re going to have to build our way out of that problem.
“You have to make it easier to build more homes,” Evangelou said. “We want to see more relaxing of zoning regulations. … In a balanced market, we see one new single-family home building permit for every two new jobs created. When we look at the Boston metro area, we see a new single-family permit is issued for every 28 new jobs.”
She said she does not expect Boston-area home sales prices to decline next year, despite the fact that demand has softened due to higher mortgage interest rates.
Alison Socha, 2023 president of the Greater Boston Association of Realtors, said the region’s real estate market is one of the strongest in the country, but the runaway price growth we’ve seen over the past few years probably won’t continue.
“We are looking at a more level set in our market,” Socha said. “People have to be careful when they see news headlines about real estate because real estate is very local. What’s happening across the country is not always what’s happening here. It’s similar to the weather. When you wake up in the morning, what weather forecast do you look at? The national one or your local one?”
“If agents put a property on the market and it’s priced correctly, there are not 100 showings, but there are still showings and offers,” Rideout said.
He said buyer protections like home inspection and mortgage contingencies, which were rare when the market was at its hottest, are back.
That said, Rideout expects the year to get off to a slow start.
“If that first-time home buyer seizes up — which they have because rates just went too high for them too fast — that impacts all other levels,” he said. “The first half of the year is going to be a little bit of a struggle for everybody at every level. But I think in the second half … the market will start to come back again.
“It’ll be a correction, not a crash.”
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