Housing market indicators, like affordability, days on the market, time of year, market type, and inventory, determine the best time frame for profitable real estate transactions. Real estate professionals and potential property buyers and sellers must examine these indicators before taking steps in the real estate process. While 2022 was a seller’s market due to low supply and high demand, trends are slowly shifting in 2023 as housing inventory improves and mortgage rates continue to rise.
Keep reading to learn how to read the real estate market and know if 2023 is a buyer’s or seller’s market.
1. Local Housing Affordability
The Housing Affordability Index assesses an individual’s ability to secure a mortgage loan on a median-priced property at the national and regional levels. It is measured based on income and the most recent home price data. Homeowners should have a house they can pay for while still having enough money for necessities like food, healthcare, and transportation.
An affordable home consumes no more than 30% of a household’s income to determine what you can afford. Homeownership affordability is low if the average income doesn’t qualify for a mortgage. On the other hand, homeownership is highly affordable if the average household makes substantially more money than is required to pay the average mortgage.
How Local Housing Affordability Looks Currently
According to the National Association of Realtors (NAR) housing index statistics, the affordability index was lower at 101.2 in December 2022 compared to 142.2 in December 2021. This housing affordability index stats means that a household has enough funds and can qualify for a mortgage on a median-priced home.
A household with a median income has enough incoming funds or salary to qualify for a mortgage on a median-priced house when the value is equal to or more than 100. A score of less than 100 indicates that the family’s income is insufficient to qualify for a mortgage on a median-priced home.
While the Home Affordability Index remains over 100, the declining trend since May 2022 demonstrates decreasing house affordability. Home prices will continue to rise due to inflation as housing inventory decreases. Mortgage rates will also rise to battle inflation, potentially driving up home prices and reducing housing affordability. However, there has been an uptick in affordability in December.
Key Takeaways:
- For buyers: If you plan to buy a home, the growing prices and lower inventory may decrease your purchasing power. Learning how to read the real estate market and plan your finances ahead will help you prepare for the real estate market.
- For sellers: When the affordability index is high, demand for homes rises because most purchasers can afford a mortgage. With the current housing shortage, this is a good selling indicator. Most homebuyers dive into the market when affordability is high, resulting in high demand and home sale prices.
Zillow’s housing market reports
Read reports on Zillow to learn more about the trends in the housing market in your area. Zillow, the nation’s most popular real estate listing website, analyzes real estate economic indicators weekly. It also has an interactive home value index tool to help you visualize trends. Discover the most affordable properties in your neighborhood and the real estate agents representing them.
2. Interest Rates
An interest rate, or “mortgage rate,” is the money a borrower must pay back to a lender over time. The interest is a proportion of the amount owed, known as the “principal.”
How Interest Rates Look Currently
Compared to the historic low rates in 2021, interest rates in 2022 increased to combat inflation. Thirty-year fixed mortgage rates have risen from 3.92% in February 2022 to 6.32% in February 2023.
The Federal Reserve implemented more Fed interest rate hikes through 2022, adversely affecting mortgage borrowers since higher Federal rates result in higher interest rates and monthly mortgage payments.
Key Takeaways:
- For buyers: Despite rising mortgage rates, this year could be an excellent time to buy a home. Based on historical statistics, a mortgage rate of 5% is still meager compared to interest rates of 8.64% in 2000, 10.19% in 1986, and 18.53% in 1981. Purchasing a home now may also protect you from rising rental prices and continued inflation through 2023. Know what you can afford and create a realistic budget to avoid impulse purchases.
- For sellers: With mortgage rates still relatively low compared to pre-pandemic levels, more homebuyers may still afford to buy a home, increasing demand. This is still another reason to sell, as supply is scarce. Yet, rising mortgage rates erode buyers’ purchasing power and, as a result, reduce demand for new homes.
3. Median Days on the Market
Days on market (DOM) is the total number of days a home is on the market—from when it is first listed to when the seller signs a sales contract. It determines how long it takes to sell a house. Understanding the median DOM allows you to gauge how active the market is in your area. Here are a few instances:
Higher DOM | Lower DOM |
|---|---|
Fewer buyers, less competition | More buyers, more competition |
Issues with property | Highly desirable property |
Overpriced | Underpriced or priced appropriately |
Unmotivated seller | Motivated seller |
How Median Days on the Market Look Currently
With low mortgage rates and property inventory, houses sold faster in 2022 than in previous years. Based on data from Redfin’s U.S. housing market indicators statistics, properties stayed on the market for 27 days in January 2022 and 51 days in January 2023.
According to a NAR survey, with supply remaining constrained compared to demand, 16% of homes sold above list price, unchanged from the previous month but down from 46% a year ago. Also, 54% of houses sold in less than a month. This fell from 57% last month to 79% in January 2022.
Key Takeaways:
- For buyers: If you plan to buy a house, expect high asking prices, bidding wars, and rejected offers. According to NAR, homes listed received 2.5 offers on average, up from 2.2 last month but down from 3.9 in January 2022.
- For sellers: Demand for homes will stay high, and houses will sell faster as serious buyers strive to lock in current mortgage rates. Bear in mind that seasonality can have an impact on the DOM. It will be beneficial to be aware of the best and worst times to sell a house.
4. Housing Inventory
The number of properties for sale is referred to as the housing inventory. As the law of supply and demand dictates, more inventory means less pressure to raise housing prices. Conversely, a lack of inventory may encourage homeowners to boost their prices to offset rising demand.
How Housing Inventory Looks Currently
The housing inventory has fluctuated throughout 2022 and ultimately increased overall. By August 2022, 7.6% increase in year-on-year (YoY) growth was marked in the number of homes listed on the market at 1,812,937, the year’s highest record. Then, the number of homes for sale increased in January 2023 to 1,310,665 from 1,092,660 in January 2022. This is a 20% increase in year-over-year (Y-o-Y) growth.
Key Takeaways:
- For buyers: If you want more options, keep an eye out for more current listings on the market. If mortgage rates rise, supply may outstrip demand. This may give you more flexibility in negotiating the asking price. To sell the house faster, some sellers may disclose probable repairs, which may have been less likely in a hotter market.
- For sellers: Selling with a high supply and low demand will undoubtedly result in house sales below the asking price. However, demand typically rises in the spring and summer months. If you can wait until then to sell, you’re more likely to get a higher price for your home.
5. Time of Year
Seasonality in real estate refers to a particular period of the year, and its impact varies depending on location. The weather, school year, and holidays often influence seasonality. Spring to early summer has historically been the busiest real estate season, with the highest demand and the most homes sold. As a result, April through August is busier than any other month of the year. On the other hand, the Christmas season tends to have the lowest housing demand from November to February.
How Time of Year Looks Currently
From July 2020 to June 2022, the months of supply remain at one. While starting from July 2022 to December 2022, the months of supply increased to two. As of January 2023, the monthly supply is at three, which is 2% increase in Y-o-Y growth.
These seasonal trends have changed due to increasing inventories and high mortgage rates. The months of supply represent how long it would take for every home currently on the market to sell at the current rate of homeselling activity. A market is deemed balanced when there is six months’ supply, with fewer months signifying a seller’s market and more months indicating a buyer’s market.
Key Takeaways:
- For buyers: The increase in inventory and decrease in demand is great news for homebuyers who have budgeted their finances well. When more people avoid the market, you may experience less competition and have greater wiggle room for negotiations. For the best deals, evaluate the best and worst times to buy a house.
- For sellers: With the increased housing supply, the market is on the buyer’s side. For higher-priced homes, selling during the spring season will net you more money from your property.
6. Homebuyer Competition
There is a competitive real estate market if there are low numbers of homes for sale, quick sales, listings have multiple cash offers, term escalation clauses, and high sale prices.
How Homebuyer Competition Looks Currently
Historically, the spring months are the busiest for homebuyers, and this scenario still rang true in 2022. Nationwide, 44.3% of home offers faced competition on a seasonally adjusted basis in July 2022, compared with a revised rate of 50.9% one month earlier and 63.8% one year earlier, according to a new report from Redfin.
Moreover, Redfin reported that the housing market has started to recover. Although the demand is rising in a few parts of the country, it is still concentrated. Houses that spark bidding wars are typically cheap, suburban, single-family, move-in ready, and competitively priced. Redfin noted that in January 2023, Seattle and Tampa markets received slight upticks in offers facing bidding wars. Because this is an uneven pattern, it will take some time until bidding wars in the United States exhibit an increasing trend.
Key Takeaways:
- For buyers: Hiring a top buyer’s real estate agent and getting pre-approved for a mortgage is critical when buying a home in a competitive market. Also, be prepared to go house hunting quickly and make an immediate decision. Purchasers who put off deciding on a potential house usually find themselves out of luck since the home they want to buy is sold by the time they make a decision.
- For sellers: If your location sees a seller’s market, now is an excellent time to sell. Not only will your days on the market be shorter, but you may also receive many offers, potentially raising your sales price.
7. Market Type
Market types indicate whether buyers or sellers dominate the market. A buyer’s market favors buyers since there is more supply or many active listings. On the other hand, a seller’s market is advantageous for sellers because there are more buyers than available homes, resulting in higher demand and pricing.
How Market Type Looks Currently
Based on Realtor.com’s housing market trends report, in January 2023, there were 65.5% more homes for sale than in the same month in 2022. Therefore, there were 248,000 more houses up for sale last month than a year ago.
While the quantity of available homes for sale is increasing, it is still 43.2% lower than from 2017 to 2019. This indicates that there are still fewer properties available to buy than there were a few years ago. However, despite this increase in active listings, prices remain high at a median price of $383,460. This is a 1.5% increase in growth over the past year.
Key Takeaways:
- For buyers: As new home construction increases, demand may cool down in the following months because of rising mortgage rates. If you plan to buy in a seller’s market, get pre-approved for a loan and make an offer quickly. Remember that you are at a disadvantage because more bidders are eager to make an offer.
- Sellers frequently prefer cash purchasers, so offering an all-cash will put you ahead of your competitors. But avoid getting too caught up in the bidding war, as this will lead you to offer more money than the home is worth. Patience and waiting for the market to calm down will enable you to obtain the greatest deals.
- For sellers: Despite the rising inventory, the market will continue to favor sellers due to a national housing scarcity. Limit showings to foster buyer competition, stage the house for sale ahead of time to attract better offers, and reduce the sales price to allow for higher bids from buyers.
8. Rental Market Trends
The rental market has the potential to influence home sales. Rents surge due to little rental inventory combined with high rental demand, which could snowball into property prices, interest rates, and inflation. Long-term renters may decide to buy a property since the costs of homeownership are less expensive than the increasing rents. That is, paying rent could be more costly than a mortgage payment.
How the Rental Market Looks Currently
The median asking rent in the United States increased 2.4% year-on-year to $1,942 in January 2023, the smallest growth since May 2021 and the lowest level over a year. This is roughly one-sixth of the rate seen in January 2022, when rentals were up 15.6% year-on-year. Additionally, yearly rent growth declined for the eighth consecutive month in January 2023. Rents were down 1.9% from a month ago and 5.4% off their peak of $2,053 in August.
If you live in rural and suburban areas, renting can be more affordable than purchasing a home. On the other hand, renting might be cheaper if you live in big cities.
Key Takeaways:
- For buyers: Rents could increase primarily due to low inventory. This could motivate sellers to increase home prices to match increasing demand. If you’re buying a home with high rental rates, brace yourself for more bidding wars, especially from first-time homebuyers.
- For sellers: Demand may stream from seasoned buyers, first-time buyers, and investors as rental rates increase. Investors, in particular, are buying houses to turn them into rental properties. If you need more time to sell your home, you can lease it to take advantage of the high demand.
Aside from these real estate market indicators, other market conditions provide data-driven insights to real estate agents, investors, and clients whenever looking for a home, selling, listing, hunting for a rental home, or representing clients in this market. To have the most accurate look at the current housing market, check out the 20 most crucial real estate statistics in 2023.
Based on Housing Market Indicators, Will 2023 Be Better or Worse?
Realtor.com predicts that the home market in 2023 might turn into a “nobody’s market,” unfavorable to buyers and sellers. The slowdown in home sales transactions that started when mortgage rates increased in 2022 will persist this year, moderating home price increases and moving the balance of the housing market away from sellers.
But, with mortgage rates rising as the Federal Reserve steers the economy toward a smooth landing, a slowing in home price increase will not be enough to turn the housing market into a buyer’s market. Instead, homebuyers will have more options, but prices will remain high, making it difficult to afford a home when your overall budget is still strained.
Bottom Line
Several housing market indicators can affect the best time to buy or sell a home, including local housing affordability, interest rates, median days on the market, housing inventory, time of year, market type, and rental market trends. While 2022 was unmistakably a seller’s market due to low supply and high demand, patterns may shift gradually in 2023 as home inventory recovers and mortgage rates continue to increase.
