That old adage about “the more things change, the more they stay the same” has been right when it comes to real estate in 2023. If you’re wondering what to look for when buying a house, you will need to first gather a ton of patience, a good real estate agent, and help from a mortgage specialist to get the home you want in the 2023 housing market.
Home inventory across the United States is still tight, and new buyers are working as hard as they were in past years to find homes to tour, negotiate, and buy. This is especially true on the West Coast, where homebuyers are finding limited inventory across major cities.
What has changed, though, is the mortgage interest rate hikes due to inflation, and that may be why home inventories are extra challenging. Homeowners who purchased in the past three years likely have historically low interest rates on their home mortgages, and they don’t want to sell at a time when high inflation has caused those record-setting 2- to 3-percent rates to go to 5 or 6 six percent or higher.
That “wild swing,” as home-buying expert Zillow puts it, between interest rates is why home buying and selling has been difficult in 2023. Zillow and other market watchers are saying they think future dips in home mortgage rates might spur more people into the market, but that constant volatility in the economy is likely to keep most people out for the foreseeable future.
"This market is not as frenzied as it was during the last two years, but home buyers might start to feel some déjà vu at the dearth of options," Jeff Tucker, Zillow senior economist, said in a statement. "Home sellers seem to be sitting out the early spring selling season in surprising numbers."
And speaking of numbers, Zillow reported in March 2023 that new home listings in February were at a record low for that time of year — nearly a third lower than before the pandemic and 22% lower than it was in 2022, in fact. The largest annual declines in new listings were on the popular West Coast, with home listings in San Jose down 47%, Portland down 46%, and Sacramento down 44%.
So what should you do if you’re thinking about playing your hand at the real estate game in 2023? For a lot of people, buying a house is the most exciting time in their lives. Home ownership is the American Dream come to life, after all. And it is possible to find that perfect place in the midst of a tough real estate market. But there are a lot of things to consider when buying a house. Take a look at these answers to popular questions before diving headfirst into the home-buying process.
1. What are the 3 most important things when buying a house?
The three most important things to understand when buying a house are market conditions, what kind of interest rate you might get, and what you can afford. Market conditions will determine how many houses are on the market at any one time — that is, if there is a shortage of listings, you will have fewer options to choose from when you start your house hunt. Interest rates can affect how much home you can purchase, so starting your home search when interest rates are lower will allow you to get more for your money. And knowing what to look for when buying a house also includes price. Understanding what you can afford is important because if your budget cannot handle the fluctuations of the marketplace, then you may have to wait to buy a home until interest rates fall again or more houses come onto the market that are in your selected price range.
2. Is 2023 a bad time to buy a house?
Truthfully, there are some pros and cons to buying a house in 2023. On the plus side, you will have an investment that will grow in value over time, and that is important if you want to have assets that help you become financially wealthy. A home not only gives you a place to rest at night, but it also tends to be the biggest asset a person owns.
On the negative side, the home-buying process has become more competitive and interest rates have climbed because of the inflationary market. Home prices have stabilized over the buying frenzy in 2020 and 2021, but some communities are still expensive and may have multiple bidders on a single property. There will always be reasons to buy, and there are always reasons to wait. You should work with your lender and real estate agent and read up on the topic — the PODS Blog is a great place to start — to determine whether you feel comfortable buying in this kind of tough market.
3. Will house prices go down in 2023?
There are two possible answers to this question. The first: Yes, prices are likely to go down somewhat in the short term in this current housing market. For the second answer: No, prices will not go down enough to find “bargain” prices on a home.
To explain that first answer, you have to look at the end of 2020 and the beginning of 2021, when there was a surge in home buying nationwide. Homes literally sold in hours if not days, people were paying over asking price, bidding wars had prices going well beyond appraisals, and buyers were waiving contingencies (like appraisals and inspections) to close even faster. Some people even cashed out financial accounts to make all-cash offers, which allow for faster closings (and are sellers' favorites).
That said, buyers making home offers have calmed down somewhat since then, resulting in the second half of 2022 being a little more of a realistic housing market. Things have continued to ease in 2023. Homes are taking days if not weeks to sell (albeit still incredible), and the prices are closer to what the seller is asking or slightly under. However, prices are likely to remain higher in bigger cities, where there may not be enough land to build on or builders willing to put up new houses — and that puts pressure on existing homes to meet the needs of all new buyers on the market.
4. Should home buyers be worried about the banking system?
Given the recent news in 2023 about financial institutions like Silicon Valley Bank collapsing, home buyers may feel worried. But with quick intervention, SVB and other banks that found themselves struggling have been shored up and customers’ lives are settling back down now that they know their savings are protected. The bottom line is you should have an emergency fund and little to no debt before buying a home so that when a rainy day comes, you are prepared. But for most Americans who have up to $250,000 in the bank, you can rest assured that you have ample protection from the Federal Deposit Insurance Corporation. The FDIC is an independent agency created by the Congress to maintain stability and public confidence in the nation’s financial system and it protects deposits up to $250,000. Yep, that’s what it means to be an “FDIC-insured bank.”
5. What should I consider when buying a house?
There are many things to consider when buying a house, and your wants and needs are key to this. This is a decision that starts with your budget and ends with your wish list, especially if you are a first-time home buyer. Consider the following:
- Your lifestyle: Are you on a strict budget and want to find a smaller home with a relatively smaller price? Or do you want to live a lavish, more high-end lifestyle, with luxury amenities, such as a swimming pool, extreme landscaping, more bedrooms, and a gourmet or upscale kitchen (and, in turn, a larger house note).
- The neighborhood: Is it safe? Are there good schools nearby?
- Your family size: Do you want kids or pets, if you don’t already have them? Will space be an issue?
- The overall expenses: The negotiated sales price will likely not be the final price of the home. Think about overall expenses when buying, such as the home-inspection cost, appraisal cost, and additional closing costs. You will also want to know your credit score for buying a house.
|Did you know? Whether you decide to buy now in the current housing market or later, PODS portable moving and storage containers can make the transition easier. Pack and load on your own schedule with a container located conveniently in your driveway. When you're ready, PODS will pick it up and take it to your new place or store it at a PODS Storage Center for as long as you need.
6. What to avoid when buying a house?
You should avoid buying a house because you feel pressured or in a hurry. Square footage, quality of finishes, proximity to work or school — that is what to look for when buying a house for you or your family. If you feel pressured or rushed, you may buy something out of your budget and end up with payments you cannot afford. You also should seek a home where you will be comfortable financially and geographically for at least two to five years. That time frame will give you enough time to recoup your closing costs and other fees associated with the home-buying process. That time frame will also hopefully allow the house you bought to appreciate in value, helping you gain some additional funds that you can roll into your next property purchase. As a home is generally a person’s largest asset, buying and selling too quickly or without your overall financial picture in mind can cause headaches that can take years to resolve.
7. How much should a down payment be?
When it comes to a down payment for a house, buyers generally put down between 3% and 20% of the home’s overall price — the larger the down payment, the better. That is tough for first-time home buyers, since they don’t have property to sell first to potentially help with the down payment. However, low mortgage rates mean a house can be more affordable, even with a smaller-than-typical down payment (more on why rates are so important below). Keep in mind that you may end up in a bidding war if you live in a hotter-than-average home market, though, so be prepared for house counter offers and multiple bids by having your financial house in order with a good down payment. This is where your lender and real estate agent can give you some great advice that is specific to your individual situation.
8. What are mortgage rates looking like?
Mortgage rates went from some of the lowest of all time in 2021 to higher than they’ve been in years in 2023. Why does this matter? Interest rates are especially important when thinking about things to consider when buying a house. Ideally, if you can get a lower mortgage rate for your loan, you will pay less in interest and your monthly payment will be more affordable for you as part of your overall housing costs. If you have to negotiate a higher offer because a home has multiple bids as a buyer or a seller, you’ll want to save as much as you can in other areas, such as mortgage costs and homeowners insurance.
9. What is included in closing costs?
Traditionally, closing costs are the fees and other charges that buyers have to pay when they complete their home purchases. This includes items such as mortgage insurance, homeowner’s insurance, appraisal fees, and property taxes. You’ll likely also need to pay a commission to your real estate agent for their help in the purchase. Closing costs are expensive — typically, 2% to 5% of the loan’s overall cost. That means you’ll want to make sure you’ve saved enough to cover these costs when you get to closing.
|Insider Tip: Owners have many options when it comes to home offers, so you may want to consider covering some of their closing costs when making an offer.
10. How do you determine your debt-to-income ratio?
This is where an online calculator or your real estate agent comes in handy. You need to determine your monthly bills, which includes your rent, groceries, or other regular costs — all essential things to consider when buying a house. You divide that total by your gross monthly income, which is defined as your take-home pay before taxes are deducted. Then, you have that key ratio, which tells your lender and a potential seller whether you have enough money to successfully buy that house. It’s always a good idea to have your financing and finances in hand as you go through the home-buying process.
11. If you sell, should you rent versus buying in this market?
This depends on where you are in life. If you are looking for a smaller place because your previous home fit your family and now they’re not living with you, you may want to look to rent for a time before finding something new. If you are waiting on the market to “cool down” more so you can buy back your old house at a lower price or buy something as a bargain, though, you are likely to be disappointed right now and well into the near future. Prices are staying up, most financial gurus say, and you will be renting for too long if you are hoping for prices to plummet, given the other market tensions and issues. Really think hard about what you want out of the sale of your home. It may feel like there are so many things to consider when buying a house, but you’ll be happier if you have a long-term plan in place before accepting an offer or buying something new.
Karen Dybis is a freelance journalist and a frequent contributor to the PODS Blog. Her work has appeared in Time magazine, U.S. News & World Report, The Detroit News, and more.