Deciding whether it’s a good time to sell a home is a personal decision and heavily based on your own situation.
That being said, I’ll give my best analysis of the current market and let you decide whether you should sell your house now or wait until 2023.
If you want a quick answer, homeowners looking to sell should not wait until 2023. The housing market will likely continue to weaken.
We’ve experienced an unrealistic housing market since early 2020. You can think of the market as a tall mountain. The peak was likely in the spring of 2022. Now we are coasting downhill with the bottom far in the distance.
In other words, the longer you wait, the harder it may be to sell your home.
The incredible market was caused by Federal Reserve stimulus in the aftermath of the COVID-19 pandemic. It pumped trillions of dollars into the economy while driving mortgage rates into the 2s. This caused an all-out homebuying frenzy. Suddenly, a lot more people could afford a home, and the largest contingent of homebuyers ever, Millennials, were entering the market.
Now, “the Fed” is starting to tighten like few times in history. It has realized that prices for homes – and for just about everything else – are out of control. Inflation is around 8% annually, compared to the Fed’s target of 2%.
In response, the Fed has hiked its key interest rate by 0.75% three times in a row. That has indirectly affected mortgage rates.
According to Mortgage News Daily, the average 30-year fixed rate shot from 3.08% in November 2021 to more than 7% in September 2022. That’s a $900-per-month payment increase on a $400,000 mortgage.
But it’s not just high mortgage rates that are likely to make your job as a home seller tougher: it’s unemployment and recession.
Recession is worse for housing than high mortgage rates
The Fed will do just about anything to slow inflation.
That includes causing a recession.
The Federal Reserve Chair, Jerome Powell, who normally holds cards close to his chest said on September 21, “the chances of a soft landing are likely to diminish.” He went on: “We’re committed to getting inflation back down to 2 percent because we think that a failure to restore price stability would mean far greater pain later on.”
“The chances of a soft landing are likely to diminish.” – Fed Chair Jerome Powell on September 21, 2022
In a separate speech, Powell stated that its policies would likely “bring some pain to households and businesses.”
According to the Cato Institute, the Fed has only accomplished four soft landings of 12 attempted since World War II. A soft landing describes inflation control without a recession.
The point is that the Fed wants higher unemployment and will cause a recession to get it. High unemployment is a great antidote for inflation.
The Fed itself predicts that unemployment will rise from 3.7% currently to 4.4% in 2023. That’s still very low unemployment, and I believe they might overshoot that goal because that’s not high enough to bring down inflation.
What does that mean as a home seller? It means that a lot of people that might have purchased your home will either be unemployed or fear they will lose their job. Either situation is enough to take someone out of the home market.
Imagine 7% mortgage rates plus the chance that you’ll be laid off in a month. Almost no one would buy a house under those conditions.
Why it’s still a good time to sell a house
In a recent Fannie Mae housing survey, 59% of respondents said it’s still a good time to sell a home.
And for good reason.
The economy is still strong, and those who do not work in the housing sector are still pretty confident that they’ll have a job in a few months. There are currently more than 11 million job openings in the U.S., which is about 60% higher than the previous high. Employees have their pick of jobs and are feeling confident.
Plus, you have record-low housing inventory going for you. According to the National Association of Realtors, there are about 1.3 million homes on the market, versus an early-2010s average closer to 2.3 million.
Not only is inventory low, but the largest contingent of homebuyers ever is about to enter their 30s, prime homebuying age.
If the economy is strong, there will be people to buy your home. This is true even at 7% rates. But throw in a recession, and all bets are off.
Is there any situation in which you should wait until 2023?
My advice to sell in 2022 isn’t applicable to everyone. Those who should consider waiting are:
You’re just considering moving, downsizing, or changing jobs: A lot can happen in a year, and it’s not worth pre-emptively selling when you’re not 100% sure of your future plans.
You plan to sell and buy again: The market in which you sell will also be the one you buy into. If home prices drop by 2023, sure, you might sell for less, but you’ll also likely buy for less. That begs the question: should you sell, rent for a year, then buy again? You might come out ahead by doing that, but there are no guarantees. Timing the market is really hard and rarely works out as you imagined.
You think you paid too much and you’re trying to offload the house and/or you think home prices will drop 50%: Don’t sell your home (now or in 2023) just because you think you paid too much. Have you seen rent prices? Hang onto your home. I thought I made the biggest mistake of my life after I purchased a home in 2006. It felt like there was no bottom to home prices starting in 2008. Now the home is worth about 2.5x what I paid (and my mortgage payment is a fraction of what rent would be.) It’s not a good idea to sell if you’re trying to “get out while you can.”
Should I sell my home now? FAQ
Historically, it’s still a very good time to sell your home, even though most people compare today’s market with the abnormal one of 2020-2021. Home prices are still high, and there’s still a severe lack of inventory in most markets, giving you the upper hand as a seller.
The housing market is likely to get worse in 2023 as the Fed potentially induces a recession to slow inflation. Unemployment levels could rise, which is worse for housing than high rates.
No. It’s not a good idea to sell your home because you fear falling home prices. First, you’re likely to have to pay a lot of money to sell the home — upwards of 9-10% of the sale price. Second, you’ve locked in your housing costs, and rents will continue to rise into 2023. If you sell now, you’re once again subject to ever-increasing rent.
Sell in 2022 while it’s still a seller’s market
Sure, the seller’s market isn’t what it was in 2020 or 2021. But it’s not a good idea to compare a favorable market to a completely unnatural one. It’s still a historically good time to sell a home.
Look at your circumstances, and, if you have the choice to sell now or in 2023, it’s likely better to sell now.