Will Sellers Still Have an Upper Hand in 2023?

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  • Low housing inventory has given sellers today an advantage over buyers.
  • Things could change next year if inventory picks up.
  • If there are more homes available, sellers will have no choice but to come down on price.

It will really boil down to one key factor.

Back in high school, I took a basic course on economics and learned the laws of supply and demand. In a nutshell, whenever you have more supply of a product than there is demand, the price of that product tends to shrink. And when demand exceeds supply, the opposite happens -- the price of that product can soar.

That's precisely what's been happening in the real estate market these past couple of years. In 2020, mortgage rates started plunging to record lows in the wake of the pandemic. Meanwhile, home listings came to a halt -- because after all, who wanted to deal with selling a home in the middle of a national and global health crisis?

Meanwhile, housing inventory has remained low since the latter part of 2020. And that's given sellers a huge advantage over buyers in the real estate market, even as mortgage rates have risen sharply this year.

But will sellers retain their advantage in 2023? Maybe not. It really boils down to housing supply and how much demand there is for it.

Housing inventory could pick up

Right now, the real estate market doesn't have enough homes to meet buyer demand. But that could change next year -- either because inventory picks up, demand decreases, or both.

In fact, we may be more likely to see a decline in buyer demand than a drastic rise in inventory. As mentioned, mortgage rates have risen a lot this year, and they're not showing signs of slowing down. That's apt to be a turnoff for buyers. And if rates keep rising into 2023, we could see more buyers pull out of the market, thereby narrowing the gap between supply and demand.

What might also happen is that a recession might strike. That's something economists have been warning of for months on end.

If the economy takes a turn for the worse, that, too, could easily push buyers out of the market (partly due to fear, and partly due to job losses). And in that scenario, we'd also have a narrowing of the supply-demand gap.

Once the demand for homes no longer grossly exceeds the available supply, sellers might have no choice but to come down on prices. And that could make homeownership more affordable for those buyers who do stick around in 2023 -- even with mortgage rates being higher.

Get yourself ready to buy

If you're looking to buy a home, you may have a solid opportunity in 2023 -- so it's important to gear up for that. You can do so by raising your credit score if it needs work and socking away extra money for a down payment. Shedding some debt could also benefit you as a potential home buyer, because mortgage lenders want to see a low level of debt relative to your income.

All told, we don't know what's in store for 2023 as far as housing inventory and buyer demand go. But if the former picks up or the latter shrinks, sellers might lose their edge in the coming year. And that's something prospective buyers should be aware of.

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