Home Shoppers to Face High Rates, Economy With Resolve

For the fifth year in a row, about 8 in 10 Americans (83%) say buying a home is a priority for them, according to a new NerdWallet survey, remaining consistent in the face of a pandemic, a tumultuous economy and a housing market that has generally benefited sellers. 

Also consistent: The overly optimistic share of those planning to make such a purchase in the coming year. 

About  28 million Americans, or 11% of them, plan on purchasing a home in the next 12 months, according to the NerdWallet survey conducted online by the Harris Poll among 2,051 U.S. adults from December 1-5, 2022. This rate has been steady, ranging from 9-11% of the population, since we first asked in 2019. And as with years past, the numbers reflect an unrealistic optimism. Even in 2021, when the market was on fire, about 6 million existing homes were sold.

"Home buyers haven't caught a break since the beginning of the pandemic," says Holden Lewis, Nerdwallet Home and Mortgages expert. "Competition among buyers was fierce in 2020 and 2021, and then mortgage rates skyrocketed in 2022. The housing market finally might be friendlier to buyers in 2023. Mortgage rates could fall, and home prices might decline in some places." 

Key findings 

Many buyers may have unrealistic home price expectations. One in 9 (11%) Americans plan on buying a home in the next 12 months, and those prospective buyers hope to spend $269,200, on average. This is significantly lower than the typical home price as of October 2022 — $379,100, according to the National Association of Realtors. 

Many Americans blame the economy and mortgage rates for feeling worse about 2023 homebuying prospects. About one-third (32%) of Americans feel worse about their ability to purchase a home in 2023 than in 2022, regardless of whether buying a home is in their plans. This is up from 25% when we asked last year. The top reasons for feeling worse include a worsening economy (58%) and higher mortgage rates (57%).

Most expect a housing market crash. Two-thirds (67%) of Americans say a housing market crash is imminent in the next three years. 

2022 proved a tough market for buyers. Most (70%) Americans who had plans to purchase a home in 2022 (as of January 1, 2022) were unsuccessful. A small share (4%) of those who fell short of their plans say they canceled them because they changed their mind about ever purchasing a home. 

Homebuying budgets may need a reality check 

The 11% of Americans planning to purchase a home in the next 12 months hope to spend $269,200, on average, according to the survey. The median (middle-value) anticipated spend among this group is $200,000. This is notable when compared with median home prices across the nation — $379,100 as of October 2022, according to the National Association of Realtors — and indicates some prospective buyers may be disappointed when they begin shopping. 

Relatedly, the survey found 86% of Americans say homes currently for sale in the U.S. are overpriced. 

Home buyer tip: Setting a realistic homebuying budget doesn’t only ensure you end up with a manageable mortgage payment — it also makes the shopping process easier. By drawing a line in the sand before you begin, you can limit your search and have a clear-cut point at which you walk away from negotiations. “Finding room in the budget” for more can easily lead to overextension and buyer’s remorse once you’ve closed. Talk with a local agent about the average price of homes where you’re shopping to ensure your upper limit is realistic. 

The economy negatively impacting outlooks

About one-third (32%) of Americans feel worse about their ability to purchase a home in 2023 versus 2022, regardless of whether they plan to do so, according to the survey. This is up from 25% who felt similar when we asked last year. It marks the first time in the past three annual surveys that more Americans said they feel worse about buying in the new year than felt better. 

Many blame larger economic factors for their pessimism. Of those who feel worse about their ability to purchase a home in 2023 than in 2022: 

• 58% feel worse because they say the economy will be worse in 2023.

• 57% feel worse because they say mortgage rates will be higher. 

• 57% feel worse because they say home prices will be higher. 

A far lower share cite personal financial reasons for their gloom — 24% say they feel worse because they’ll have less in savings, 22% because they’ll have less income and 20% because they’ll have more debt. 

The economic impact is hitting those who don’t currently own homes — the survey found 28% of nonhomeowners say the current economic climate is preventing them from pursuing homeownership at this time, up from 20% in each of the last two years. 

But economic outlooks could be bleaker than necessary 

A majority of Americans (67%) say a housing market crash is imminent within the next three years, according to the survey. As prices have climbed significantly over the past few years, the fear of a crash may be understandable, though it’s unlikely. 

"Home prices already have been falling, especially on the west coast, and prices will fall in some cities in 2023," Lewis says. "But a drop in home prices isn't necessarily a crash. Home values went up around 40% from the middle of 2020 to the middle of 2022, so most homeowners will have equity even if prices fall 10% or 20%. A price decline of that magnitude would be uncomfortable for homeowners, but it would bring out the buyers." 

Another potential point of confusion: high mortgage rates. About 3 in 5 Americans (61%) say current mortgage rates are “unprecedented,” that is they’ve “never been what they are now,” according to the survey. In fact, the very low rates of 2020 and 2021 were far more unusual than the roughly 6% rates we’re seeing on 30-year mortgages now. Over the last 50 years, rates on 30-year mortgages have averaged 7.75%, according to data from Freddie Mac. 

Home buyer tip: Rates are higher now than they have been for a few years, to be sure. And the increased cost of interest must be a factor in your homebuying budget. But it’s not necessarily a reason to delay a home purchase unless you’re comfortable waiting quite a while. Consider the low, low rates of 2021 an anomaly and factor in these bigger financing costs as if they’re here to stay. Then, if rates do dip, you’ll be in an even better position to buy.

Most 2022 would-be buyers fell short 

Three in 10 (30%) Americans who had plans to purchase a home in 2022 (as of January 1, 2022) were successful — they either purchased or were in the process of doing so at the time of the survey. That leaves 70% who were not. It has been a strong seller’s market for some time, and in most locations, the odds were not in buyers’ favor during 2022. Competing offers for scant, high-priced homes were the norm.  

For the 70% of prospective buyers who planned to but did not purchase in 2022, the most common reasons they were unsuccessful include: 

• 26% say they made at least one offer on at least one home but did not go under contract. 

• 26% of that group postponed or canceled those plans because they couldn’t afford the available homes. 

• 25% postponed or canceled those plans because they couldn’t find an available home that met their needs.

Some would-be buyers’ 2022 experiences may have shaped their desire to ever purchase: 4% of those who planned but failed to buy a home in 2022 say they canceled those plans because they changed their mind about ever purchasing a home. 

Discouraged would-be buyers aren’t the only ones potentially put off homebuying: 60% of Americans say buying a home is not the measure of achievement it once was (i.e., the American Dream).

Home buyer tip: Housing prices have begun to stabilize, and more homes are available for sale, but that doesn’t mean buying in 2023 will be easy. Prospective buyers should steady themselves for compromise. There is still a shortage of homes for sale, so buyers will likely have to concede on some wish-list items, not to mention the sale price.

Current obstacles to homebuying 

While the current economy is a factor for many would-be buyers, several things that prevent people from purchasing a home are timeless. Not having enough saved for a down payment and having a low income and credit score have been among the most frequently cited obstacles to homebuying among nonhomeowners over the past four years, according to this and previous surveys. 

These three factors are among the top obstacles to homeownership for those who don’t currently own a home — but fortunately, potential buyers can take steps to surmount them. 

Home buyer tip: Whether you’re buying in 2023 or in years to come, your down payment can always get bigger, your credit better and your income higher. A higher down payment means a smaller loan and less interest paid over the life of the mortgage. A higher income and better credit can help you get the best mortgage rate possible. The sooner you begin working on these things, the better your position will be when it finally comes time to buy.

Longer-term home buyer goal: Save money 

Buyers with a longer timeframe — those planning to purchase sometime in the next five years — are already thinking about how they can save money. About 2 in 5 Americans (41%) plan on buying a home in the next five years, and 93% of this group say they’re already using or planning to use strategies to make the process more affordable. 

Adjustable-rate mortgages may look particularly attractive when rates are high, and 14% of those hoping to buy in the next five years say they’re planning to get one to make homebuying more affordable. The fixed introductory interest rate — which can last several years —  may be lower than a traditional fixed-rate mortgage. After that period, the interest rate may increase or decrease, depending on the market. Though they are generally better regulated and more transparent than before the housing market crash of the 2000s, 81% of Americans believe ARMs are “risky,” according to the survey. 

Younger generations planning to buy in the next five years are more likely than their older counterparts to say they’ll be purchasing a property that serves as a home and an income stream to make homebuying more affordable: 35% of Generation Zers (ages 18-26) and 29% of millennials (ages 27-42) versus 17% of Generation Xers (ages 43-58) and 14% of baby boomers (ages 59-77). 

Home buyer tip: Lewis says first-time buyers should be alert to opportunities even as they save up for down payments. "It's important to have a savings goal, but be ready to seize an opportunity if one pops up sooner than expected." If you only begin home shopping once you’ve made the final deposit into your down payment fund, you could miss out on favorable conditions in your local market and the perfect home for your needs.