The real estate market is cyclical and always changing. here are the top trends in the market for 2023.

Rates are on the rise

The Federal Reserve raised interest rates‡ in May by a quarter of a percentage point for the 10th straight quarter. Rates are the highest they’ve been for 15 years and remain volatile. Interest rates determine how much house you can afford. To put it plainly, your interest rate is the amount you will pay back to the lender over the life of the loan. With higher rates, some are getting priced out of the market. In addition, mortgage applications are slowing down because rates are higher, yet inventory is still low in several markets.

What does this mean for people looking for a new home? You will have a higher monthly mortgage payment due to higher interest rates, yet you may still have trouble securing a home because the number of homes on the market is less than the number of shoppers.

As we look ahead, the Fed has indicated they may not raise rates any higher, but inventory will most likely remain tight for many cities.

Market is rebalancing

Because of higher interest rates and low inventory, the market is starting to rebalance. Until recently, homebuyers were having to offer thousands of dollars over the asking price, forgo inspections, or other bargaining chips. The frenzy has started to die down as demand is leveling out. Buyers have a little more negotiating power when they make their offer, but sellers are still able to sell quickly and see a profitable return.

In addition, we aren’t seeing as many second time homebuyers upgrade to new homes in this market. People are staying put longer because they might have a low interest rate on their current home or because they can’t find what they need readily available in today’s low inventory. Finally, for many buyers, they still have to submit several different offers to get one accepted on a house they love.

First-time homebuyers might get lucky

Some first-time buyers are being priced out of the market and finding it difficult to have an offer accepted on a home because so many are being submitted. Here is what we are seeing in a few of the larger markets we serve:

  • In Denver, many first-time homebuyers‡ are struggling to find a home and end up renting for longer.
  • In Kansas City‡, St. Louis‡ and Dallas‡, first-time home buyers are having a little more luck, but their home search is still taking several months, and several offers.
  • Finally, in Phoenix‡, first-time homebuyers are able to close on their home, but it might be at the top of their budget.

Many lenders also have first time home buyer programs that a buyer can explore. Each program is different, with different parameters, but it is worth researching with your lender.

New construction soars

Even with higher interest rates, supply chain delays and inflation, many markets are still seeing new construction homes; however, the prices are considerably higher than a resale home. The length of time to build a new home is also taking longer because of the aforementioned challenges. Still, these new construction homes are flying off the market as soon as they are listed.

For homebuyers considering a new build, they are using the equity in their current home as the down payment to build. Yet, with the rising interest rates, homebuyers do not know what their final interest rate will be until they sit down at the closing table. There is a little bit of risk with a new build because of this. If you want to look at a new build, talk with your financial team and realtor to review a few different scenarios to help forecast what your monthly payment might look like.

Owning a home is still a good investment

Even with higher rates and low inventory, owning a home is still a good investment. Homeowners are still able to build equity in their house and lock in their mortgage payment compared to renters who deal with rent fluctuations and the lack of equity.

Some buyers might be looking for their new home for longer or must compromise on a few things on their wish list. Nevertheless, it is still attainable to close on a home that you and your family will enjoy. And in the end, if you find your dream home, you can discuss refinancing options with your lender as rates change later on.

When you are ready to start looking for your home, one of the first steps is to talk to your financial team. Your financial partners can talk to you about your goals and budget and review how your mortgage payment changes with rates and over time, so you feel confident in your decision.

UMB personal banking solutions offer convenience and simplicity to meet all your financial needs. From home loans to auto financing and everything in between, see how UMB personal banking can work with you to find the right products for your life and lifestyle.

Navigate the homebuying process and learn about the benefits of owning a home through the Owning a Home playlist on the UMB Financial Education Center. Use our mortgage calculator to see the impact of these variables along with an amortization schedule.

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