3d rendering of modern suburban house in the garden.

While inflation dropped to just over 7 percent in November, holding steady in December, the Federal Reserve plans to continue rate hikes through 2023 in hopes to further slow inflation. During 2022, the Fed instituted seven consecutive rate hikes, ending the year at 4.25 percent to 4.5 percent. What does this mean for owners, borrowers, and buyers? 

For those hoping to buy a home or land in 2023, the outlook may feel quite bleak. While the housing market has slowed throughout 2022 in large part due to previous rate increases, continued Fed hikes are likely to slow the market even further over the next year. First time homebuyers may be initially intimidated by current and estimated market predictions, those with a solid financial situation may have their pick of available houses or land. 

Borrowers planning to purchase cars, homes, land, or take out personal loans will be slapped with high interest throughout the year as the Fed does not foresee rates decreasing until 2024. Depending on loan type, current homeowners could also experience monthly payments increases unless they have obtained a fixed rate mortgage. Additionally, anyone with credit card debt will see an increase in their monthly bill as credit card interest rates follow closely behind.

However, all is not lost! There are several ways you can prepare your personal finances for the next year. 

  • Pay off revolving debts as much as possible. Review your spending. Do you need every available streaming service? Which ones could you drop for now and pick back up later? What are you subscribing to that you don’t actually use? When it comes to paying off debt, every little bit helps and you do not have to break the bank to make a difference in your balance. Check with your lender to ensure your additional payments are being applied to your principal balance and not interest. 
  • Build up your savings. HYSAs or High Yield Savings Accounts are a low risk way to keep your money safe (and out of reach of your favorite coffee shop or brewery) while also earning more than traditional savings accounts. You may also want to discuss a Certificate of Deposit (CD) with your bank as the increase in interest will be applicable to these accounts as well. Increases in your savings means more security during lean times and puts you in a much better buying position once rates decrease. Adding to your savings is a great way to set you up for success once things have cooled down. 
  • Purchase responsibly. If you are in the market for a new car, home, or land, the best time to buy is before rates increase again. Lock in a lower rate before the next Fed hike as mortgage rates are likely to follow shortly behind. Once mortgage rates do drop, you could refinance and obtain a lower rate, paying significantly less in interest over time. Additionally, home and land prices are decreasing as the market slows. 

While current conditions seem discouraging, there are also positive outcomes from these changes. Higher rates of return for savings accounts, lower housing prices, and lowering costs of consumer goods are silver linings. If you are looking to purchase a home or land in the next year, you are in a good position for lower costs even with a rise in interest. 

Keep looking for your dream home, your first home, the bigger yard for your pandemic puppy, the land for the horse you just bought your kids for christmas. As daunting as the next year may seem, you may just find the perfect fit for you in 2023. 

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