Zillow Predicts Home Values Will Increase by 5.8% in 2023. What Does This Mean for Hopeful Home Buyers?

The home-buying process can be stressful, especially during a challenging market. For those looking to become homeowners within the next few months, it's essential to have realistic expectations.

A recent Zillow report predicts home values will increase by 5.8% this year. While this prediction is excellent news for existing homeowners, it will likely disappoint hopeful buyers.

The current U.S. home supply is lower than last year

It's not the best time to buy a home, especially in the United States. According to Zillow's July 2023 Market Report, there were 26% fewer homes on the market than there were last July. That statistic is slightly better than June 2023, when there were 28% fewer homes than there were the year prior.

With fewer available homes nationwide, it makes buying more difficult when competing with other hopeful buyers. Soon-to-be-buyers should keep this in mind as they put in offers.

Why are there fewer homes on the market? One big reason inventory is lower than last year is likely due to current mortgage rates. With higher, less attractive rates, existing homeowners have little incentive to list their homes. Those with mortgage rates well below current rates don't want to buy a new home and take on a new loan with a higher rate.

Home values may continue to increase this year

Existing homeowners have benefited from rising home values and may continue to do so. Zillow's Home Value and Sales Forecast for July 2023 expects home values to increase by 5.8% in 2023. The real estate marketplace company notes that tight inventory conditions have continued to put upward pressure on home prices.

What could this prediction mean for those looking to buy? It could mean they will need to spend more for a home. Hopeful buyers should prepare to spend more money than they may prefer when buying a home.

Before starting the home-buying process, it's an excellent idea to consider potential home value increases when setting a home-buying budget. You don't want to buy beyond your means and regret your decision. The last thing you want to do is stress about your personal finances soon after closing on a property because your mortgage is unaffordable.

As you begin the home search process, be honest about your financial situation when setting a budget, and consider current mortgage rates. You can use The Ascent's mortgage calculator to estimate monthly costs, including interest and property taxes, before buying so you're more prepared.

You should also be realistic about current home sale prices and home values as you start looking so you make offers that sellers will consider. If not, other buyers may scoop up the homes you like. If you're unsure about the current market in your area, it's best to reach out to a real estate agent for guidance. Working with a professional can ease stress.

Stay committed, and don't give up as you search for a home

If you intend to buy a home soon, don't let market conditions and predictions get you down. Continue to stay focused on the end goal. If you're not in a time crunch, you may want to continue to stash cash into a high-yield savings account. As your money sits in the bank, it'll earn interest, and your bank account balance will increase.

While mortgage rates and home prices are generally out of your control, you have some control over monthly mortgage costs. By making a larger down payment when buying, you'll need to finance less. Doing this can make your mortgage payment more affordable and save you money on interest costs in the long run. If you're considering buying your first home, check out these first-time home buyer tips.