Investors Are Easing Up on Home Buying in 2023. Here's Why That's a Good Thing

Less competition for homes? Yes please.

Did you spend 2022 watching the housing market and shaking your head sadly? You've no doubt got company there. But as we head deeper into 2023, there is one tiny bright spot: Redfin recently released some predictions for the 2023 housing market, and it believes that investor activity in the market will ease some this year. This could mean fewer investors buying properties and selling them, and instead sitting on currently owned homes and opting to rent them out.

If you're hoping to buy a home this year, this potential development should come as welcome news. Here's why.

A bit of good news for buyers

We started off 2022 in a bad enough spot for buyers, with home prices up nationally. This was thanks to the buying frenzy (and low supply of homes) of 2020 and 2021. Then mortgage interest rates started rising, just adding insult to injury. At the start of 2022, the average rate on a 30-year fixed-rate mortgage was 3.22%, per Freddie Mac. As of this writing, we sit at 6.48% for the same mortgage.

Investors leaving the market won't have an effect on interest rates, but if there's less competition for the homes available, you could save some money on your purchase that way (and avoid getting into a bidding war). This could be a good year to offer less than asking for a house, and see what the magic of negotiation can do for you. You could also end up with some seller concessions, like getting your closing costs covered, even if you end up offering the full asking price.

If Redfin's prediction comes to pass, you could be looking at less competition from real estate investors, but you will likely still need to contend with other aspiring home buyers. Here's how to give yourself a fighting chance.

Be the best buyer you can be

Ideally, you're not in a rush to buy a home. If you are in a bad situation with your rental or need to move sooner rather than later, you may not have the option to take on these tasks. But if you're able to wait for the right moment (and the right house), focus on the following to be the best buyer possible.

Improving your credit score

Mortgage lenders will want to see at least a 620 FICO score for a conventional loan, but if you can beat that, it'll save you money by allowing you to qualify for a better interest rate (and every little bit counts with the average rate as high as it is right now). Focus on getting errors removed from your credit report and making on-time payments, which has a big effect on your score.

Paying off debt

This will improve your credit score, too, and show lenders that you're capable of keeping up with your mortgage and all the other costs of homeownership. Focus on getting your debt-to-income ratio under 36%, as that's generally the threshold lenders like to see from borrowers.

Saving money

Not only will you need a down payment for a home, but you'll also likely need to pay for closing costs (unless you can get a seller to cover them) for your mortgage. And you don't want to leave yourself flat broke in the process of buying a home -- unexpected costs are a hallmark of owning a house. Plus, you might want to be able to paint or do a little remodeling when you buy a place of your own.

Keep your chin up -- sometimes we get good news. And fewer investors to contend with this year could mean less competition and fewer bidding wars for ordinary aspiring home buyers.