2023 CHICAGOLAND REAL ESTATE FORECAST
The real estate trends of the past two years, marked by intense competition and increasing prices, are not expected to reemerge to the same extent in the coming year. However, despite the challenges of higher interest rates and economic uncertainty, we still expect to see terrific opportunities for both buyers and sellers.
THE ROAD AHEAD
STABILIZING PRICES & LESS COMPETITION
The last two years saw historic home price increases and intense competition among buyers—fueled by historically low interest rates and tight inventory. However, these recent trends are not expected to continue next year. If interest rates continue to rise and inflation persists the real estate market will likely look decidedly different in 2023.
Stabilizing Home Prices
At the height of the boom in 2021, there were weeks when average prices were more than 20% higher than the same period one-year prior. This rate of increase slowed in 2022, and the most recent data shows for November that average and median sale prices are now virtually unchanged from a year ago in many parts of Chicagoland.
With higher interest rates softening demand, many expect prices to remain stable, with little to no increase in 2023.
How About Inventory and Competition?
Over the past two years, the number of buyers has far outpaced the number of homes for sale. This lack of inventory was a defining factor of the pandemic housing boom—and often led to bidding wars and multiple offers that left many buyers out in the cold. Looking ahead to 2023, a variety of conflicting factors will come into play.
Potential sellers who purchased or refinanced in the last few years have locked in a historically low interest rate, and may be hesitant to list their home this spring if it means securing a new loan at a higher rate. With the number of new listings already trending downward compared with one year ago, the current inventory shortage is likely to continue next year.
However, higher interest rates will also mean fewer buyers, and many of them will have a specific need to move—perhaps driven by a job relocation or other life change. Although this points to a pool of highly motivated buyers, the bidding wars and multiple offers that defined 2021-22 are not likely to be as common.
So What’s Next?
Despite the challenges of higher interest rates and continued economic uncertainty, we expect to see opportunities next year for both buyers and sellers.
For buyers, stabilizing home prices present an opportunity to secure a new home at a more affordable price. While interest rates may currently be higher than in recent years, the option to refinance may present itself if mortgage rates decline, leading to an overall more affordable cost of living long-term.
For sellers, continued low inventory will naturally force competition amongst the serious buyers in the marketplace, ultimately helping homes that are priced competitively to sell faster.
We do not expect current interest rate and inflation concerns to alter historic market patterns. The usually busy spring season (February to June) will likely continue to see the highest volume. Whether you’re looking to list or purchase a home, now is the best time to set your plans in motion.
SELLERS GET READY
2023 sellers, are you wondering how you can start preparing? There are some things that all sellers should consider tackling before it’s time to list. This pre-sale checklist is an excellent place to start:
Maximize Curb Appeal
First impressions matter and easy fixes like repainting the front door or planting flowers can entice prospective buyers to look further.
Declutter and Depersonalize
You want buyers to envision themselves living in your space. Go through your entire home and declutter and remove personal items like family photos, bold artwork and furnishings.
Repaint in Neutral Tones
Dramatic color choices are also very individual. With neutral tones, you’re less likely to deter buyers, and it will be easier for them to picture your house with their chosen palette.
Fixing & Cleaning
Small issues like a loose doorknob or broken light fixture can make a potential buyer wonder what else might be wrong. Undertake minor fixes and make sure everything is spotless and clean.
A BRIEF FOR BUYERS
Be the most prepared homebuyer in your area! If you’re considering purchasing a property this spring, start checking off the items on this ‘do’ list, and know what to avoid to improve your chances of securing your dream home.
Get pre-approved for a mortgage. This shows the seller of your future home that you are a serious buyer that can afford their property, which will give them confidence in accepting your offer. If you are bidding for a home that has multiple interested buyers, your pre-approval can also help your offer stand out from the pack. Need a trusted lender to help you? I can recommend a few!
Know your credit score. Check it for free at annualcreditreport.com so you know your financial standing, and get ahead of any potential issues early on. Just don’t check it too often, as this can negatively impact your score.
Pay off any large balances. you can boost your credit score by keeping your outstanding debts low.
Make any major purchases on credit. these can increase your debt-to-income ratio, and take away from your upcoming down payment and closing costs. Big ticket items to avoid might include a new car, large pieces of furniture, or a fancy vacation.
Move large sums of money. Shuffling your money around may show lenders instability. It’s better to keep your money where it’s at for now so you can access it quickly and demonstrate a stable history.
Change jobs. This can impact your financial stability in the eyes of your lender, which could lead to less favorable loan terms when it’s time to secure your mortgage.
HOW ABOUT A 2-1 MORTGAGE BUYDOWN?
With higher interest rates impacting buyers and a cooling market of concern to sellers, a 2-1 Mortgage Buydown can offer advantages for both. Here are the basics:
Paid for by the seller, it lowers the buyer’s loan interest rate by 2% in the first year and 1% in the second. It then reverts to the original rate in year three.
At any point, the buyer can refinance if rates have come down. If they refinance early, any remaining buydown funds are applied to the principal.
For the seller, offering a mortgage buydown can make their listing more attractive. At a typical cost of 2.35% of the buyer’s loan, it can be a better (and less expensive) option for the seller than a price reduction.