February Market Report: What Rate Relief Should Clients Expect in 2023?

As the coming months begin to thaw the winter selling season, buyers and sellers are dealing with a number of affordability challenges. Inflation has cooled, but it’s still far from the Fed’s 2% target. The 30-year fixed rate remains double what it was near the end of 2021. Meanwhile, home values are on a downward trend. 

But it’s not all gloom. In our first market report of 2023, Zillow economists discuss where agents may find some bright spots.

Rates will fluctuate some but won’t fall significantly

Key stat: After peaking at 7.08% in November, 30-year mortgage rates are dropping closer to 6%.

Even though interest rates have drifted down, mortgage rates will likely continue to ebb and flow. “Expect rates to stay higher than pandemic-era lows for the foreseeable future,” says Zillow Senior Economist Nicole Bachaud. Her prediction: “Somewhere around the upper 5s to mid 6s.”

Sometime early spring, the shelter-based component of the consumer price index should start to decline, according to Zillow data. This will help cool inflation, but likely not enough to get back anywhere near 2% before 2024.

Takeaway: Agents can help their clients by extending their lender networks, says Zillow Chief Economist Skylar Olsen. “Volatile mortgage rate environments present in different ways, like seeing very different rates from different lenders on the same day,' she says. 'Since many buyers are struggling with affordability, getting any sort of break on the rate is extra important. You want to give your buyers options while still providing them and sellers the confidence that they can close on time.”

Buyers have time to think

Key stat: January’s median time on market, from listed to pending, was 31 days. That’s much slower than last January’s 9 days, but still faster than pre-pandemic norms for this time of year, like 42 days in January 2020.

Takeaway: Last year, people had to waive financing contingencies and inspections to secure a home. The longer time on market means less competition, so buyers have time to explore their options. Mortgage rates are a legitimate hurdle, but buyers don’t have to rush as much to make a decision.

“The affordability picture with mortgage rates right now is tough,” Olsen says.  “But was last year a great time to buy when you maybe had to submit multiple bids above list price? There is always a tradeoff. If we did see rates come back down under 5%, that's a competitive housing market again. And, oh boy, does the demand come back.”

Active inventory is up because homes are selling slower

Key stat: Active inventory increased 15.9% year over year in December, but sellers still have to navigate a complicated market. 

“The flow of new listings coming onto the market is slowing to a trickle,” Bachaud says. “Inventory is up because homes are sitting around longer before selling.”

Fewer would-be sellers want to list their homes in this market as well, especially if they’re already locked into low mortgage rates. In many cases, affordability is just as much of a hindrance for sellers as it is for buyers.

Takeaway: “Just because a listing sits on the market for three weeks doesn't necessarily mean you have to gut the list price. Three weeks used to be normal,” Olsen says. “Agents need to know the nuances of their areas and guide sellers accordingly. With that type of advice and strategy, especially in a transition market, a well-informed agent is indispensable.'