Where is the Housing Market Going?

The past decade has been excellent for the housing market. We've seen record-low interest rates, significant growth in home values, low foreclosure rates, and record home sales over the last 15 years. Houses sold more rapidly amid bidding wars and often for greater than asking price. Coming out of the hot market we experienced post-pandemic, 2022 saw signs of cooling as buyers pulled back. Those who purchased homes when mortgage rates were at an all-time low have opted to stay put, while those who must sell are starting to lower prices due to rates doubling.

Sellers who can hold off until interest rates drop have a better chance of getting a higher price for their home. As interest rates rise, the housing market is cooling down when compared to previous years. Are houses selling now?  Should I buy a house in this market? Read on for answers to these questions and 2023 predictions for Naperville real estate.

Real estate demand is declining as buyers and sellers try to regain their footing after the pandemic housing boom, and that's not likely to change any time soon. Nationally, the housing market is already high, but with the increase in mortgage rates in 2022, it's becoming far less affordable for many people. While trends show buyers are still interested and the market is reasonably competitive across the board — especially in high-end and luxury markets — other factors influence both buyers and sellers. Higher mortgage rates, for example, have caused the market to cool and create a more level playing field. Although home prices are not likely to fall, we’ll see them rising much more slowly than in recent years.

According to the National Association of Realtors (NAR), the median home sale price is around $384,000, up from last year but down from earlier in 2022. Naperville real estate home prices average above the national average at roughly $490,000. Those shopping for mortgages find higher housing costs and rates taking a toll on them. According to the Mortgage Bankers Association, mortgage applications have declined to their lowest level in 22 years. These changes are caused by a mixture of the current economy and consumer desire, and with everything continuing to shift, it's hard to predict where things will land.

With signs of a further weakening economy and the highest inflation level in 40 years, the expectation for another interest rate increase in the Federal Reserve is significant. This causes many to question whether the US will enter a recession, while others believe the job market and spending will remain steady. These mixed signals and high levels of uncertainty cause stagnancy in the housing market. Consumers don’t know whether it's a good time to purchase a home or sell a home.

On the one hand, home sales have dropped nearly 1.5%, according to the NAR, a continuing decline over the past seven months. But the housing inventory remains low, which is likely the root cause of such low demand. Despite low sales, many Naperville homes for sale still receive multiple offers, and many are above the asking price.

We've seen low inventory for many years, even with the incredible rates and prices during the pandemic boom, and it's not likely to recover any time soon. We're also looking at more people ready to purchase real estate, making the inventory tighter than average. With a mere three-month supply available, a significant increase in inventory can bring it to standard levels.

Experts are currently on the fence about whether there is an expected crash or if the market will continue to balance and correct itself from the previous years. Most experts agree that homeowners today are more financially stable than those of the last recession, so seeing another one is significantly low. There might be a slight drop in the housing market across the nation, but most homeowners are content with their levels of home equity.

Additionally, with more mortgage restrictions and regulations, the market will tolerate a moderate shift. If the market were to crash, there would be signs of significant price declines, 20% to 30% or more, and foreclosure activity.

Though there have been declines in housing inventory and prices, they are far less significant than the 20% you'd expect. Additionally, there has yet to be a substantial number of foreclosures, which isn't likely to change. Foreclosures remain at about half the normal levels, and it's projected that they'll return to normal or increase in mid to late 2023.

One of the most significant reasons for this is that most homeowners were able to secure their mortgage when rates were at an all-time low, which means fewer are struggling to make payments. The increase in home value also means equity, which means they do not owe more than the home is worth and can maintain their financial positions.

Purchasing a home is not linear, and because it's not only a significant investment but a primarily personal decision, the answer is also not linear. One of the best things you can do to prepare yourself is to ensure you are financially stable. For those who secured a home during the period when rates were historically low, wait out the purchase and see what happens before taking the plunge.

If life circumstances require you to search for Naperville homes for sale, contact Keith Dickerson, a leading agent in the Chicago area, to guide you through the process smoothly.