In the wake of the pandemic that altered our lives and disrupted the traditional homebuying season, the housing market appears to be regaining its seasonal rhythm. Most people have heard of the term “homebuying season,” though many may not be entirely clear on when it typically occurs. In essence, it refers to a period characterized by higher prices, increased sales volume, and a greater number of homes on the market, predominantly during the warmer months. However, it’s essential to understand that this “season” is just one aspect of the broader yearly housing market dynamics.
Historically, the housing market has exhibited a somewhat predictable pattern, with home prices, sales, and listings rising and falling during specific months. But the COVID-19 pandemic and its economic repercussions disrupted these patterns, beginning in 2020. Now, we are seeing signs of a return to a semblance of normalcy.
Shifting Housing Trends
Before delving into the future, let’s first acknowledge what has changed:
- Price Trends: Home prices surged in the months following pandemic lockdowns. Although this growth has since moderated, and in some markets, prices may even decrease, a return to pre-pandemic price levels is unlikely. Likewise, the era of ultra-low mortgage rates has passed, and higher rates are here to stay. As consumers adapt to this new reality, demand is stabilizing. So, even if data trends return to predictability, the numbers themselves won’t resemble those from the past.
- Sales Price Patterns: Traditionally, prices are at their lowest at the beginning of the year, rise during the summer, gently decline in late autumn, and start the cycle anew. Home prices typically peaked in June or July in eight of the past 10 years. However, 2020 and 2021 saw a deviation from this trend, with sales prices peaking in December. In 2022, sales prices dropped significantly due to rising rates towards the end of the year. In 2023, price growth is expected to be less dramatic than in 2022, but a return to a more traditional seasonal pattern is likely.
Impact of Higher Mortgage Rates
Higher mortgage rates have had a significant impact on the housing market, particularly in recent years. In a typical year, the number of active listings begins at a low point, rises in spring, peaks in the fall, and then declines towards year-end. However, in 2020, inventory continually decreased throughout the year due to the ongoing pandemic. The situation improved in 2021, with a more seasonal inventory trajectory, but the number of listings remained significantly lower than usual. Last year, inventory began to recover, with a notable increase from February to October.
For 2023 buyers, the market may resemble a more typical seasonal pattern, with listings increasing into autumn. Still, high mortgage rates will continue to limit inventory growth. Many existing homeowners locked in lower interest rates, making them reluctant to give up their advantageous mortgages for the higher rates seen in 2023. This means that the selection of available homes may have improved compared to 2021 but still won’t meet the demand. Buyers with a long list of must-haves should consider being flexible and willing to compromise on factors like location, price, or features to expand their options.
Normalizing Sales Trends
The pandemic initially caused a dip in home sales in the spring of 2020. However, demand remained high throughout the year, contrary to the typical seasonal trend. In 2022, rising mortgage rates helped moderate demand, leading to a decline in the number of homes sold in the third and fourth quarters.
For sellers in 2023, despite the cooling demand compared to the first two pandemic years, it remains relatively strong due to the limited supply. This scenario points towards continued competition and increased likelihood of a successful sale. While higher interest rates will impact your mortgage payments, the equity you’ve built in your current home might allow for a larger down payment. Consider shorter mortgage terms like 15- or 20-year fixed-rate mortgages instead of the traditional 30-year option to reduce overall loan costs. Although today’s rates are higher, the reduced years of interest payments can offset this increase.
In conclusion, the housing market is showing signs of returning to seasonal patterns, with adjustments influenced by higher mortgage rates. Understanding these shifts can help both buyers and sellers navigate the market effectively in 2023.