U.S. Homebuyers Start To Regain Upper Hand in 2023

Chris Donoso and Yefry Rodriguez's year-long search for their home, a two-family property in Jersey City, N.J., took more than a little patience—and a motivated seller who cut the price by $10,000.

"We got very lucky,'' said Donoso, a speech pathologist, and Jersey City native. "The house was under contract with someone else, but their credit fell through and it was right back on the market. So that gave us room to negotiate."

Granted, concessions are still a rarity, and the couple was able to keep their financing costs low and wait until they got the price they sought. The home's location, in a low- to moderate-income neighborhood, also meant they qualified for a Community Reinvestment Act mortgage, typically about 2 percentage points below the average rate.

Still, their experience underscores a market that's downshifting from the heady days of the pandemic, according to Rick Sharga, founder of CJ Patrick Company, a real estate advisory firm. Rising mortgage rates have made housing less affordable and slowed sales, and homeowners with low-rate mortgages are reluctant to swap them for rates above 6% unless they're forced to sell for unforeseen reasons such as a divorce or a job-driven relocation.

"If you're seeing a property on the market today, you're probably seeing a motivated seller," Sharga said. "If you're a homeowner who doesn't have to sell, you're going to wait for conditions to improve."

Existing home sales fell for a 12th month in January to a seasonally adjusted rate of 4 million, down 0.7% from December and 36.9% from the same month a year earlier, according to the National Association of Realtors. The inventory of unsold existing homes rose to 980,000 at the end of January, the equivalent of 2.9 months’ supply.

Housing became a seller's market in the pandemic years of 2020-2021, when mortgage rates were still below 3 percent and buyers were looking for more space to quarantine and work from home. With a shortage of properties for sale, bidding wars became common. Median home prices rose by almost 30% over the period.

'Kick-Ass' Spring Market

Now the pendulum is set to swing back. How slow or fast depends on your perspective and your location. It's not a buyer's market, yet, except in a few areas where prices are falling, and in some isolated circumstances, like Donoso and Rodriguez's experience.

"It’s more of a buyer's market than it was," said Rachel DiSalvo, a broker at Keller Williams who helped Donoso and Rodriguez find their home. DiSalvo expects a "kick-ass" New York metro market this spring. "It's hyperlocal. Our area has fewer bidding wars than it used to, but there's still a shortage of homes for sale."

Yet few expect the market to rebound quickly.

"The first half of the year is going to be rough, especially the first quarter, which is going to be pretty ugly," Sharga said. "The second half of the year looks better. The hopeful scenario is home prices dip a bit and mortgage rates come down to the fives."

Buyers also will have the upper hand in a handful of cities where prices are set to fall or are already on the decline. That includes high-growth cities like Austin, Phoenix, Las Vegas, and even Boise, Idaho, as well as coastal California and the Pacific Northwest, where prices could fall by 10% or more, Sharga said.

As markets recover, the shortage of inventory, which the NAR says is about 5.8 million units, will weigh on sales, except in markets, largely in the Sunbelt, where inward migration will drive demand.

While cities like Austin and Phoenix overheated, much of the Sunbelt is still on the rise, including the Carolinas, Tennessee, Florida, Alabama, and parts of Texas. The most important driver will be population growth and job growth.