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Despite elevated mortgage rates and a continuing shortage of homes for sale, the 2023 market has some bright spots for buyers.
The frenzied competition of the past few years has settled down, home prices are stabilizing, and properties are staying on the market a little longer.
“It's not as crazy as it was," says Trevor Gearin, a real estate agent with Century 21 McLennan & Co. in Methuen, Massachusetts. "Six months ago, the buyers didn't have a chance to think. Now we're seeing buyers being able to negotiate a little."
If you're thinking about shopping for a home, here's what to expect and how to approach the market.
After big gains in the past three years, home prices are expected to stay flat.
The National Association of Realtors, or NAR, predicts median existing home prices will rise just 0.3% in 2023 — a stark contrast from the 9.6% year-over-year increase in 2022 and eye-popping 18.2% jump in 2021. Existing homes are those that were owned and occupied before going on the market. The NAR projects prices for new homes to creep up 1.3% in 2023 after double-digit gains in the past two years.
About half the country may see small price increases, while the other half may see slight declines, Lawrence Yun, NAR's chief economist, said in a press statement. "However, markets in California may be the exception, with San Francisco, for example, likely to register price drops of 10 to 15%."
Buyers already have more choices in some markets, but the supply of homes is still tight. In October, there was a 3.3-month supply of homes for sale, meaning it would take a little over three months for all available homes to sell at the current pace. In October 2021, there was a 2.4-month supply — but a balanced market has about a five- to six-month supply.
Sellers can't call all the shots the way they did a year ago.
"It's still a neutral market in some areas, but it's definitely shifting toward the buyer's benefit," says Ramez Tabri, an agent with Century 21 Real Estate Alliance in the San Francisco Bay Area. "There are really good deals to be had."
Some markets still favor the seller, but even there, buyers are standing firmer. For example, fewer buyers are giving up on home inspections, as many desperate shoppers did last year to win bidding wars. Some buyers are even getting sellers to pay some of their closing costs.
"That's something that a year ago was unheard of," says Nate Johnson, president of Real Estate Solutions at RedKey Realty Leaders in St. Louis.
Johnson says St. Louis is still a seller's market, and well-priced, well-maintained homes continue to sell fast. But other properties are sitting on the market longer, and premium properties are seeing fewer offers. "A year ago, a property may have gotten 10 offers," he says. "That same property is going to get three or four offers."
Mortgage rates more than doubled in 2022, with the 30-year fixed-rate mortgage rising from about 3% at the beginning of the year to more than 6% in December.
The 30-year fixed is expected to average from 5.2% to 6.8% in 2023, according to recent forecasts by Fannie Mae, Freddie Mac, the Mortgage Bankers Association and the NAR.
The Federal Reserve, which increased the federal funds rate by 4.25 percentage points in 2022 to quell inflation, isn't done raising rates. But it has stepped off the gas a little. The most recent increase in December was 0.50%, down from previous 0.75% hikes. Many lenders had built that bump into their rates, so economists don't predict a big jump as a result of the Fed's latest action.
Review your credit reports and correct any errors, and check your credit score. Pay bills on time, and pay down debt to elevate your score and reduce your debt-to-income ratio. Lenders offer the best mortgage rates and terms to borrowers with high credit scores and low debt-to-income ratios.
Schedule a free consultation with a loan officer, suggests Dan Hanson, executive director in market retail at loanDepot, headquartered in Irvine, California. A mortgage professional can let you know how your finances stack up and what you can do to improve your financial profile.
"A lot of people still think they need to put 20% down," Hanson says. "That's not true."
FHA mortgages backed by the Federal Housing Administration require only 3.5% down, for instance, and VA mortgages for veterans and active-duty military members require no down payment. Some conventional loans require as little as 3% down. And most states have down payment and closing cost assistance programs for first-time home buyers with moderate incomes.
There are fixed-rate and adjustable-rate mortgages, renovation loans for fixer-uppers and many other options.
Check out lender websites to learn about the choices.
Shop mortgage lenders
Some lenders offer a broad range of mortgages, while others specialize. Look for lenders that offer the types of mortgages you're looking for, and apply with more than one to compare.
Don't check just the interest rate. Look at the APR, or annual percentage rate, which includes the total cost of the loan, Derks says.
Compare loan estimates from different lenders line by line, Derks adds. The loan estimate, a standard document lenders must provide after you apply, details rates and fees, estimated closing costs and your projected monthly mortgage payment.
A previous version of this article gave the former headquarters location of loanDepot. The company is headquartered in Irvine, California. This article has been corrected.
Frequently asked questions
Where do I start when buying a house?
The first steps to buying a home include checking your credit score, setting a down payment goal and shopping for a lender to find the best mortgage for you.
How much money do you need to buy a home?
The amount you need to save for a house will depend on home prices in the area where you're planning to buy. Typically, you'll need money for a down payment, closing costs, and moving and other expenses after you buy the home. The required down payment for a conventional loan can be as low as 3%, depending on your credit score and income. Closing costs are usually about 2% to 5% of the loan amount.
What is the best credit score to buy a house?
Credit score requirements vary by mortgage and by lender. Typically, you can qualify for the best mortgage rates with a credit score of 740 and above.
- This blog was written by Barbara Marquand and published to Nerdwallet.com on Dec 22, 2022. The Keri White Team has no rights to this blog or the content. This is for resource purposes only.
Our team will set you up for success so you are familiar with the different steps involved in the process. From understanding financing options to negotiating with sellers or their agents, inspections, and resources, we’re here to support you every step of the way.