First of all, it goes without saying that no one has a crystal ball nor the ability to truly predict what's going to happen within the Silicon Valley real estate market in 2023 – BUT – we're always looking at data and metrics and other indicators .. from the federal government .. to local trends, to get a sense of what the market might do. With that in mind, here are a few pros and cons of buying a condo/townhouse/single family house this year:
Why 2023 is a GOOD time to buy a home
By now, the economy has mostly recovered from the economic downturn caused by the COVID-19 pandemic, and though there will be lingering effects of the disruption, buying, selling, and open houses are back to normal.
In 2023, the wildcard will be interest rates. As many people shopping for homes know, interest rates shot up in 2022 from 2.5/3 percent to the 6/7 percent range. It looks like we've seen the top and already this year rates have started to decline, so jumping into the buyer pool now means you may be able to snag a home with less competition while other buyers hang out on the sidelines waiting for interest rates to go down further. Yes, your monthly mortgage will go up due to interest rates being higher than the historical lows we saw the past few years, but it's incredibly unlikely we'll see those rates again anytime soon (barring an economic crash); and if/when interest rates do go down, you can always refinance to get a lower interest rate. In the long run, you end up spending about the same amount, because in the Silicon Valley real estate market, bidding wars cause buyers to spend more than they'd like in order to "win" against the competition. So, fewer buyers to compete against balances out higher interest rates. Furthermore, once the threat of recession goes away it's back to business as usual and you could be sitting comfortably in your own (albeit expensive) home while prices continue to rise.
Why 2023 is a BAD time to buy a home
Although Silicon Valley home sales from Nov, 2022 - Jan 2023 have dropped significantly, we don't expect things to stay that way for long. As much as I'd love to see a balanced market, the challenge our area continues to face is a lack of inventory. There's simply not enough (affordable) homes for sale. It is likely that home prices will be higher in 2023 than they were in 2021/22. Additionally, mortgage interest rates could be higher as well, which would lead to higher monthly payments. The main concerns regarding the purchase of a home in 2023 is simply the economy at large – the usually insulated Silicon Valley tech world has begun to see layoffs for the first time in a decade and the stock market has continued its roller coaster ride alongside inflation and whispers of the r-word ... recession. If your income source or overall life plan doesn't give you the confidence of at least 2 years of stability, then buying a home in 2023 may not be the right move for you.
What are the 2023 real estate predictions?
1. More buyer competition: As the economy continues to improve, more buyers will enter the market, driving up competition and prices.
2. Home prices will continue to rise: Low inventory, high demand, and rising costs of materials and labor will fuel further appreciation in home prices.
3. Interest rates will stabilize: The Federal Reserve is expected to keep interest rates lower than the highs of 2022, which will support home purchases.
4. Mortgage lending standards will remain tight: Banks and lenders will remain cautious and only lend to qualified borrowers.
5. More alternative financing options: With more people struggling to qualify for traditional loans, alternative financing options such as rent-to-own and lease-to-own could become more popular in less demand metros.
6. More people will embrace remote working: The pandemic has ushered in a new era of remote working, allowing people to live and work anywhere. This will lead to a continuation of people moving to more affordable and rural areas.
7. More demand for green and energy-efficient homes: Demand for green and energy-efficient homes is expected to increase as people become more conscious of their carbon footprint.
8. More demand for income-producing rentals: A result of people looking for flexible living arrangements and income-generating opportunities.