Navigating the 2023 Real Estate Market in a Time of Inflation

Navigating the 2023 Real Estate Market in a Time of Inflation

After many years of relatively low inflation rates, the real estate market is now feeling a significant impact of rising inflation. Peaking out at 9.1% on June 2022, inflation continues to fluctuate around 6-8.5%. With inflation cooling down and landing around 6% in February 2023, what can buyers and sellers expect for the rest of the year? While it’s impossible to predict the future, there are a few key things to keep in mind when navigating this market.


Understanding Market Conditions in 2023

Median Home Sales


Prices of home sales in the United States have increased dramatically from Q2 of 2020 to Q3 of 2022. In this short time-period, the average home price went from $374,500 to $547,800 - a increase of over 46% in just 2 years. More recently, for the first times since 2020, the market saw a drop in home sale prices for the last quarter of 2022. With the increase in mortgage rates and the stubbornness of inflation, many hopeful buyers are being kept from the market, causing a decrease in sales prices.


Mortgage Rates


The market experienced the lowest 30-year mortgage rates in history as the 30-year fixed fell below 3% in July, 2020. This was due in part to the Fed’s response to the pandemic by purchasing large amounts of mortgage-backed securities. Since these historically low levels, mortgage rates have experienced a sharp return to more normal rate levels rising from historical low levels in Janurary 2020 of 3.2% to around 6.2% in April 2023. A combination of the rise in inflation, high real estate demand and numerous policy changes made by the Federal Reserve have all caused mortgage rates to rise.

Home Sales


The market officially broke the 12-month decline in home sales in Februrary 2023 with total sales jumping 14.5% from the previous month. This increase in sales can be due to a decrease in home prices, buyers anticipating mortgage rates to increase and an overall sense of low unemployment despite economic uncertainty.

Tips to Navigate the 2023 Real Estate Market


There's no doubt that the housing market is in a large rebalance after the impacts of 2020 and 2021. With a low supply, rising mortgage rates and the expectation of even higher inflation in the future, here are some tips to keep in mind when navigating this market:


  1. Watch Interest Rates & Home Prices. Most experts in the market are predicting that high interest rates will push rate hikes in 2023. It is possible that mortgage rates could continue to climb in the early part of 2023. What does this mean? When rates increase, home prices tend to decrease. Keep an eye on rate hikes and how they may affect your purchasing or selling decisions.

  2. A More Balanced Buyer and Seller Market. Unlike the real estate market of the last 2 years, where homes were selling at extremely high prices and with multiple offers, the market is now more balanced. Inflation is still high, home prices have yet to see a large drop but home availability still remains limited.

  3. Continued Low Inventory. According to bankrate, today we have around a 3 month supply in the housing market which is about 50% of what the market needs. With most existing homeowners not wanting to lose a 3% rate to a 7% mortgage, this should keep home inventory low. In addition, higher mortgage rates will also keep new construction from rising, which could lead to a further decrease in inventory.

  4. Return to "work near the office." Virtual work during the pandemic freed many people to move to areas they preferred and away from the city. Now that some companies are returning to the office, many people may be thinking of a return to living near their job. This could lead to increased competition in certain markets, further increasing already high home prices.

Overall Market Outlook for 2023


Overall the market outlook for 2023 seems to be somewhat of a transitional years filled with uncertainty. A lot of "what may happen" in the housing market drastically depends on where inflation goes, what interest rates adjust to, what FED policies are in place and how many people are willing to move or stay put. Although it can be hard to predict what the market will look like this year, chances are that home prices will remain high while mortgage rates may keep increasing. It is important to note, however, that this climate of uncertainty doesn't mean there isn't opportunities in the market.

Working with a real estate professional in this market could be critical to finding local opportunities. This is a market of change and news and policy changes can happen quick. Having a professional to help you navigate the market and protect your interests can be one of the best investments you can make. There are opportunities to find in these market conditions, and leveraging a local real estate expert is the best way to ensure you don't miss out.

Work With Us