January 13, 2023
If there’s anything Philadelphia buyers are sick of hearing about, it’s mortgage rates.
Mortgage rates were the unpleasant highlight of 2022 and were a significant factor affecting aspiring homeowners. Rapid rate increases resulted in many Philly homebuyers pausing their home search. Many were either pushed beyond the limits to qualify for a loan or unwilling to take on a heftier monthly payment.
But there’s bad news and good news. With the bad news of rising rates out of the way, there’s the welcome prospect of rising inventory. As inventory rises and mortgage rates remain high, there is a chance that low buyer demand can potentially cool off home prices.
Below, the team from Prevu Real Estate explores several trends to watch as the Philly real estate market enters 2023.
Philadelphia is one of the few real estate markets that remained hot throughout 2022, even amid rising mortgage rates.
While other cities experienced a noticeable drop in home prices due to lower buyer demand and growing inventory, Philly home prices have been more resilient as inventory growth has been slower than other parts of the country.
Although Philly buyers are accustomed to seeing home prices rise year-over-year, that tendency shows signs of slowing down. Unbearably high mortgage rates have dampened many aspiring homeowners’ desires to search for a home, causing a pause in demand and a possible slow-down in price growth.
It’s hard to predict exactly where Philly home prices will lean in the first few months of 2023, but it is safe to say that buyers continue to struggle with home affordability.
With affordability being a vital issue for many people in 2022, finding a way to save money when buying a home will be a top priority for aspiring Philly homeowners in 2023.
Few real estate tools work as effectively as commission rebates, and savvy Philadelphia buyers have turned to them to save thousands of dollars.
It’s the preferred method most buyers will use to make purchases more affordable because of its simplicity.
A commission rebate is a portion of a broker’s commission refunded to a buyer upon closing. Prevu offers the largest rebate in Pennsylvania, allowing buyers to save up to 2% of a home’s purchase price with the innovative brokerage’s Smart Buyer Rebate Program.
For example, if you were to buy a rowhome in Queen Village for $900,000 with Prevu, you could potentially receive a rebate totaling up to $18,000.
The potential savings from a rebate can help offset expensive closing costs or replenish savings accounts post closing.
The larger part of 2022 was dominated by news of increased mortgage rates, a direct result of the Federal Reserve’s attempt to curb inflation by bolstering interest rates.
Mortgage rates skyrocketed between March and November of 2022, reaching a peak of over 7% in October. Since then, however, the surge that saw those rates peak is slowly retreating.
Some buyers have secured a 30-year, fixed-rate mortgage in the lower 6% range since the start of December. That drop of almost an entire percentage point is a promising sign for Philly homebuyers.
Whether this trend continues will depend primarily on how the economy reacts to the Federal Reserve’s aggressive response to inflation. If the previous rate hikes usher in a recession in 2023, it may force the Fed’s hand to start cutting rates later in the year, which might help put downward pressure on mortgage rates.
Sellers were paralyzed throughout 2022, as few homeowners wanted to risk exchanging their comfortable mortgage rates for a much higher monthly payment without any guarantee they could upgrade to a larger home.
That hesitation limited sufficient inventory growth to achieve equilibrium in Philadelphia. But with a retreat from the recent peak in mortgage rates since October 2022, sellers may find confidence and decide to explore the market, leading to a larger selection of homes for sale and an influx of buyers willing to consider them.
Many homebuyers look back on the pandemic real estate market with a shudder. The grueling bidding wars and resulting exorbitant home prices caused many buyers to bow out of the market.
But with bidding wars a thing of the past, aspiring homeowners enjoy much more breathing room at the negotiating table. Buyer competition slowly subsided during the first half of 2022 as mortgage rates climbed quickly.
Yet, with the possibility of more attractive home loans on the horizon, buyers may repopulate the Philly market, especially during the spring selling season. So while there is little chance the frenzy of 2020 and 2021 will ever return, it’s reasonable to expect a rise in competition again in a market as popular as Philadelphia.