Are you entering the housing market in 2023? Should you be? What is the current state of housing now, and what should you expect in the coming months?
As interest rates continue to increase and the cost of housing skyrockets for homeowners and renters alike, there’s a lot of uncertainty about whether to buy, rent, or invest in a home.
In the past year, housing costs have skyrocketed — for renters as well as homebuyers. What does the future look like for the rental and home buying industry?
Here’s a snapshot of the housing market at the end of 2022 and looking forward to 2023.
Rising Housing Costs
Climbing interest rates made it less affordable to purchase a home in 2022 — the average 30-year fixed rate mortgage rose as high as 6.92% in October. This marks the highest that rates have been since 2002. In recent years we've seen historically low interest rates and there is no guarantee we will be seeing those rates again.
Not surprisingly, buyers balked and we saw a slowdown on home sales.
At the same time, rent prices have kept pace with home buying costs. The median monthly rental cost reached a historic high of $1,879 midway through 2022 — marking nearly 18 straight months of setting new rental records.
Rent prices increased for existing renters as well as new renters. More than 50% of renters who stayed in place saw a median rent increase of $160. New renters’ leases increased by $300, on average.
Will It Be Harder to Buy a Home in 2023?
With the increase in mortgage rates, you might expect that home purchasing is becoming more difficult for buyers. But in response to rising rates, homebuying conditions are actually easing up.
For example, the median home price has dropped from $450,000 in July 2022 to $449,000 in July and $435,000 in August. There’s also more inventory available, and the average time on market has risen by five days in recent months.
Investment Trends in 2023
The increase in rental rates and the favorable buying conditions make housing investments an attractive option. Many Americans are looking toward real estate to build intergenerational wealth — especially younger adults.
Mynd’s Consumer Insights Report found that a growing number of Millennials and Generation Z are opting to make their first home purchase an investment property, which will generate income as a single family or multi family rental unit. In fact, 19% of people who own an investment property choose to rent their primary residence.
Those who invest in real estate are expanding beyond their geographical regions. Nearly three-quarters of investment property owners and renters would consider buying a property in another state.
When buying homes for the purpose of investment, technology is making it easier and more accessible to purchase properties across the state or across the country. Software solutions like Tenant Turner make it possible to manage properties from anywhere.
Younger adults are more likely to invest in property than prior generations. Almost half of Millennials and Gen Z (43%) are thinking about buying an investment property. Only 27% of Gen X and 9% of Baby Boomers are open to investing in real estate.
Other Housing Trends for 2023
The Mynd Consumer Insights Report revealed other key insights into home ownership and rental trends.
The top three reasons people choose to rent include cost of real estate (41%), unwillingness to take on debt (28%), and not being ready to commit (28%).
Single-family rental investors aren’t afraid of a possible recession. More than 75% of recent investors say they believe their purchase was a good decision — although Gen Z is most likely to worry about their property holding its value.
Only about a third of renters and homeowners are feeling optimistic about the economy, although homeowners are more likely to expect housing prices to decline.
As rent prices have increased, renters have had to cut discretionary spending to compensate. More than 80% of renters have tightened their belts in the past year. Eating out, clothing, and entertainment are the top three spending areas to be sacrificed.
Renters are also increasingly willing to move out of their current city if rent continues to increase. Personal spending cuts can only go so far, and renters are willing to uproot their lives to keep housing affordable.
Hopeful Housing in 2023
While interest rates and inflation appear to continue their upward climb, the future is looking hopeful for purchasing properties in 2023. Renters will likely have to find creative ways to keep housing costs affordable — such as relocating and making real estate investments — but younger generations are open to those solutions.
If home buying prices continue to fall, it will be important to see if rental prices adjust as well.
