It’s pretty fair to say that 2023 has been a difficult year to buy a home. The reason boils down to a few factors — sluggish inventory, expensive home prices, and high borrowing rates for people needing a mortgage.
December is unfortunately shaping up to be no exception. Here’s what buyers can expect in the coming month.
1. Mortgage rates will remain high
As of Nov. 16, the average 30-year mortgage rate was 7.44%, according to Freddie Mac. Considering that mortgage lenders were charging even more than that earlier in the month, 7.44% almost starts to read like a bargain — almost, but certainly not quite.
The reality is that mortgage rates have been elevated all year, and they’re unlikely to fall significantly in the near term. In 2024, things could change for the better if inflation continues to cool and the Federal Reserve opts to cut rates. But until that happens, buyers will probably be looking at costly mortgages.
Even if rates come down further in December, it’s likely that they’ll stay at or above 7% through the end of the year. That’s better than 7.44%, but not great.
2. Housing inventory will remain sluggish
As of the end of October, there were 1.15 million housing units available for sale, reports the National Association of Realtors (NAR). That represents a 3.6-month supply of available homes.
It usually takes a four- to six-month supply of homes for there to be enough inventory to fulfill buyer demand. But because mortgages are so expensive, existing homeowners aren’t so motivated to sell.
Many of these homeowners are sitting on 3% mortgages because they either signed their loans in 2020 or 2021, or refinanced when rates fell. So as long as mortgage rates remain stuck in the 7% range, housing inventory is unlikely to pick up.
3. Home prices will stay high
The NAR reports that as of October, home prices had risen on an annual basis for four consecutive months. And the median price for an existing home that was sold in October was $391,800 — a 3.4% increase from October 2022.
The reason home prices are so elevated boils down to inventory — or a lack thereof. Whenever there’s not enough supply of a given commodity to meet buyer demand, prices tend to increase. That’s the case today, which puts buyers in the double whammy situation of having to deal with elevated listing prices and higher mortgage rates.
Is it a good idea to buy a home in December?
It may be that despite today’s higher home prices and mortgage rates, you can swing a home that meets your needs. If that’s the case, go for it — especially if you can somehow manage to close on your mortgage and take ownership by Dec. 31. That could mean getting to enjoy some sweet tax breaks for 2023.
To be realistic, though, it usually takes at least 30 days to close on a mortgage. And things might run slower during the holidays. So unless you’re signing a mortgage on Dec. 1, you’re probably looking at closing at some point in January, or possibly beyond.
But either way, if you can find an affordable home this December, then it could pay to jump at that opportunity. And while inventory is low and will likely remain low, a lot of people may be inclined to put their home searches on pause in December to focus on the holidays. If you’re willing to power through, it could work to your benefit and result in less competition.
Either way, though, expect some challenges as a buyer. And make sure to partner with a great real estate agent to help you through the process.