Doubled interest rates compared to 2022 have raised a big question for homebuyers: how to buy a home in today’s market? Much has changed even this calendar year, going from a fervent seller’s market to one in which buyers have more leverage. However, on the flip side, affordability is a concern after sustained interest rate hikes persist. These conditions have changed the game as we knew it.
So, if you need to buy a house in 2023, what does that mean for you? How can you prepare your finances and make the most strategic negotiations? This guide will help you make the most competitive offer and how to get the most out of what you need and want in a house.
The State of the Real Estate Market
As the Fed steadily raised interest rates in America throughout 2022 and 2023, borrowing affordability decreased, cooling the intense competition among buyers for slim pickings. Also, as signs of an impending recession cast a shadow over the current market, there is a sense of urgency — and caution — in the air. You can check out more details in our Mid-Year Market Report, which contains insights from our President, Will Dickson, and CRO, Andy Satkowiak.
- Sellers are feeling the pull to offer more seller concessions due to the higher cost of borrowing. Realtors are also pushing for perks for their buyer clients, making it more than possible to negotiate key repairs like a new roof, new HVAC, and more.
- Buyers aren’t looking for fixer-uppers anymore. Under pressure to offer a higher down payment to decrease mortgage interest rates with lenders, they expect move-in ready homes. This has given new construction homes a major spotlight.
- Lower-than-standard inventory remains, making avoiding a bidding war STILL a priority for buyers of existing homes.
- With more buyers pushed out of the market, demand for rental properties remains high, and experts predict that rental prices will remain steady or increase throughout the year. This has made single-family rentals in higher demand than ever.
- Over-offering is less of a thing, so buyers are paying the list price or even below asking price as the American affordability crisis persists.
- Home values still remain fairly stable due to low housing inventory, but select markets have seen declines.
- The average size of new homes shrinks to keep monthly payments under control, keeping purchase prices contained. This contrasts with the bigger homes that were on trend during the pandemic.
Now that we know the big picture, how can buyers thrive in this market? Whether you need a new primary residence or are an investor who wants more properties for their portfolio, here are some tips on how to buy a house in today’s market.
Buying a Home in Today’s Market
After being in the thick of intense competition and little selection, buyers now gain the advantage of less competition… but lower inventory persists with higher monthly mortgage payment expectations.
Reduced affordability has lowered buyer confidence, making house hunting a more delayed process. Mortgage lenders are trying to meet people in the middle with options like 0% down loans though. VA loans, as always, remain a good option if you have served in the armed forces. (Thank you for your service!)
Take Advantage of Seller Concessions
Buyers can actually use decreased affordability in their favor. Houses are sitting on the market for longer than they used to in early and mid-2022, prompting sellers to make more concessions to close quickly.
This creates opportunities for buyers to obtain some leverage they haven’t been able to get in over a year. It’s especially advantageous for someone buying their first home. With interest rates predicted to remain rather static during the rest of 2023, sellers may also be more motivated to concede to repairs.
To sell to a qualified buyer, sellers will have to up their game. This is no longer a market where buyers have to forgo an inspection. Now, buyers should feel free to request an inspection and even some repairs during the negotiation process. Sellers may even feel inclined to pay closing costs to sweeten the deal and time their sale right. First-time homebuyers looking for more seller help can really get some ground here.
Make a Competitive Offer – But Know Your Worth
Since inventory still isn’t at the ideal 6-month standard, buyers will still have less to choose from compared to more abundant housing markets. This means that bidding wars can still be a thing in select markets, especially with lower-priced homes.
However, it’s important to note that these bidding sprees will be less extreme than the rush buyers had in months prior. To skip the fuss, buyers need to put their best offer out there. Features of a competitive offer include:
- A Love letter to the seller
- An offer at or around the asking price
- A pre-qualification letter for a home loan, which makes it easier to get pre-approval
- An escalation clause (if competition exists)
- A rent-back period
- No home sale contingency
It may not be necessary to do any of the above, or you may just need to put one or two of these perks in your offer. At this time, you should not void a home inspection. Due diligence is your key to ensure the home is in good shape and hardly any seller should be expecting a buyer to make an offer without an inspection.
Everything depends on the property type, how intense the competition is, how long the house has been on the market, and what advice your real estate agent gives you regarding negotiations. The home-buying process is never the same each time
- Tip: Don’t want the competition? Then buy a new home construction from one of our trusted builder partners. Not only do you get everything NEW and modern, but you also reap savings on commission and get exclusive access to new construction home solutions.
Get Pre-Qualified Before You Start the Home Search
As interest rates remain relatively high, buyers must pay careful attention to the mortgage payment-to-income ratio and ensure that their future payments are reasonable. Working with a lender to find your “top dollar” borrowing amount based on current interest rates is important before you shop.
Also, costs like loan origination fees, closing costs, commission, etc. will need to go into the equation. Making a down payment large enough to avoid mortgage insurance is also a plus and helps you greatly in the approval process. This will ensure that you can qualify for your loan more easily and even pay down points to make your mortgage payments more affordable.
- Tip 1: Can you pay all cash? Then that’s the way to go!
- Tip 2: Can’t pay all cash? That’s OK. You can also benefit if you have an existing home that can convert into a larger down payment. Ask us about our special incentive programs like Sell & Stay that free equity to make an offer on a new construction home.
Don’t Count on a Housing “Crash”
Though various experts have different opinions on if and how much home prices will decrease, experts do not expect a dramatic price plunge like we saw during the Great Recession.
The safest course of action would be to save for a house with existing prices in mind. If prices drop more than expected, then take it as a pleasant surprise. However, this also means homeowners should keep an eye on their equity if they plan to use it to afford their next home.
Prepare Your Finances
If buying a home is in your plans, it’s time to optimize your financial profile. A low debt-to-income ratio, stable employment, and abundant savings will help you get the best mortgage rates.
When it comes to affording a house in this market, you can never be over-prepared. Buying a house right now is just as possible as it was when interest rates were similar in the late 2000s. We were here through those times and are here to help you through the process today.
Here are some more quick personal finance tips:
- Improve your credit score by paying bills on time, decreasing your credit card utilization rate, and not making frequent, large purchases that involve hard credit checks.
- First-time buyers who don’t have home equity should save as much as possible for their dream home. The more money in the bank, the better for your lender!
- Start a conversation with a lender to understand what it takes to get a house within your desired price range. Even if you need a few years to prepare for your mortgage preapproval, knowing what your lender is likely to approve can help you make smart choices with money right now.
Make Your Best Offer with Marketplace Homes
If you want to make your dream of home ownership come true, Marketplace Homes has the insights and resources to help you. Our variety of special incentive programs make transitioning to a new construction home as easy as possible. We also offer commission savings if you buy a new construction home with our builder partners. For more information, contact us today!
Alicia Persson is the real estate content writer for Marketplace Homes. She has several years of experience working in real estate teams that specialized in investments and property management. Before she joined MH, she was a freelance writer for 7 years, providing real estate and home living content for boutique digital marketing agencies.
She is a proud University of Virginia master’s graduate and enjoyed her undergraduate years at the University of Mary Washington. When she is not writing, she plays keytar and does female lead vocals in a local 90’s band or spends time with her amazing family.