Why This Redfin Economist Is Calling the Housing Market ‘Anything But Typical’

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That’s certainly a fair characterization. 

If you’ve been trying to buy a home for quite some time now, you’re not alone. Many buyers are struggling in today’s market due to a combination of higher home values and expensive mortgage rates. And limited real estate inventory isn’t helping, either.

But if you ask one Redfin expert, today’s housing market is challenging not just due to these factors. Rather, there’s another wild card in the mix that makes it hard to predict how the 2023 real estate market will play out.

The ball’s in the Fed’s court

In a recent tweet, Chen Zhao, an economist at Redfin, said “By weekend, we usually have a good idea how a given year’s housing market will play out. But this year is anything but typical.” And the reason Zhao feels this way boils down to the potential for more

rate hikes on the part of the Federal Reserve.

“We’re not sure how much more the Fed will raise rates this year,” Zhao continued. But clearly, that lack of certainty makes it harder to nail down trends for home buyers to put on their radar.

The Federal Reserve has been on a clear mission to slow the pace of inflation. And its efforts certainly haven’t been for nothing, seeing as how we’re looking at a slower pace of inflation now than we were in mid-2022.

At the same time, January’s Consumer Price Index reading just showed a 0.5% increase in inflation from December. And that alone could spur an aggressive rate hike on the part of the Fed during its next meeting.

Now, you may be thinking, “What does that have to do with the housing market?” So here’s the deal. The Federal Reserve does not set consumer borrowing rates. It only oversees its federal funds rate, which is what banks charge each other for short-term borrowing.

But when the Fed raises interest rates, it tends to indirectly drive up the cost of consumer borrowing. And that could impact the housing market in several ways.

First, it could push more buyers out of the market due to higher borrowing costs in general. And it could also lead to higher mortgage rates — though it’s worth noting that mortgage rates commonly rise and fall independently of what the broad market is doing.

A lot of uncertainty

At this point, the 2023 housing market could go either way. Mortgage loans could get more expensive, or the cost of financing a home purchase could get less expensive as the year rolls along. And home values could continue to fall, thereby giving would-be buyers some much-needed relief.

There’s a world of uncertainty when it comes to real estate, but to be fair, there’s a lot of economic uncertainty in general to grapple with right now. So perhaps the best thing prospective home buyers can do is be patient, pay attention to trends, and do what they can to shore up their own finances so they’re in the best possible position to make an offer on a home and get approved for a mortgage.

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