What to Expect From The Housing Market In The New Year

Expect the housing market in 2023 to look different from the highly competitive housing market of the past two years. Some predictions include a gradual drop in home prices, high interest rates and a switch to a buyer’s market.

Purchasing a home is a significant financial commitment, regardless of market conditions. But after a record-setting rise in home prices in 2021 and 2022, and mortgage interest rates rising to the highest mark in twenty years, there are a few things for prospective homebuyers to keep in mind for 2023.

While the housing market can vary significantly based on location, it can be helpful to know about general expectations to consider as you prepare to hunt for a home.

Where will rates go in 2023 – and beyond?

By 2023, the average mortgage rate could hover around 5%, according to This Is Money. That will be a drop from the current highs of 6%, but still more expensive than the low pricing many borrowers currently on fixed deals will be used to.

The pricing of fixed-rate mortgage deals has been “edging down” recently, and “if this continues, we would expect five-year fixes below 4% by early 2023”, Mark Harris, of mortgage broker SPF Private Clients, told the i news site.

Home Prices Will Likely Drop

The average UK house price is predicted to fall by 10% in 2023, real estate firm Savills says.

It points out that prices have risen by 24% since March 2020, but as the Bank of England base rate is forecast to rise to 4.0% at some point, this will have a serious knock-on effect.

The firm also says that rents will continue outpacing the growth in wages in the short term.

However, a return to house price rises is expected in 2024, totalling 18% from 2024-2027 with affordability pressures gradually easing. Of course, housing price movements can vary greatly by location, so it's important to speak with real estate experts in your area to get an idea of what to expect. 

While home prices are an important factor for homebuyers to consider, it's also crucial that you consider how interest rates can impact your monthly payment. If you wait too long, hoping that prices will go down and interest rates will continue to increase, buying a home could become unaffordable. For the past couple of years, buyer demand has exceeded the supply of homes, resulting in price increases at a blistering rate. 


Key takeaways

·       Mortgage rates look set to return to 4 to 5% next year - and these rates are set to become the norm in future. The days of ultra cheap money are behind us

·       Pandemic and cost-of-living factors will continue to drive the search for new homes in 2023

·       A 5% fall in house prices next year would see most of the market’s current over-valuation reversed by December 2023

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