Housing Market Predictions for 2023

It’s been a tumultuous year for the housing market. From the buying frenzy of early 2022 to the doubling of mortgage rates, many Americans are wondering what the housing market has in store for 2023.

The cost of buying a home has reached a level where consumers need to make more than $100,000 to buy a typical home. In addition, there are many people who are worried about whether the price of their homes will fall in 2023, whether the foreclosure market will come, or whether they should just give up and go abroad.

Experts say that even if inflation calms down, mortgage rates are unlikely to return to pre-pandemic levels. Instead, experts predict that mortgage rates will fall in line with historical norms between 3% and 7% during 2023. They’re already headed there.

As they get past the last curve of 2022, prospective homebuyers are wondering what’s in store for them next year. We talked to some experts about the housing market forecast for 2023.

He points out that overall inventory should remain near historic lows as the gloomy outlook prevents more potential sellers from putting their homes on the market, explaining that “prices will continue to fall unless there is a shortage of homes for sale.”

Bill Adams, chief economist at Comerica Bank, says the economy will be more resilient to these housing adjustments than it was when the housing boom collapsed in the 2000s because mortgage lending standards have been tighter since the Great Depression, and most homeowners are in better financial shape overall.

Still, Adams said he expects average home prices to fall by an “average single” percentage point by the middle of next year, especially on the West Coast, where adjustments in the technology industry are experiencing a “glut,” with big declines in technology-oriented areas and areas where adjustments are most likely to expand.mpact.

Interest rates could be as high as 9%.

Interest rates will rise as we moderate inflation, said Melissa Dorman, a broker at Living Room Realty. Historically, Dorman said interest rates of 9 percent are not out of the range possible in the housing market in 2023.

If you’re nervous thinking about a 9 percent interest rate, try not to panic. “There is no longer any expectation that a home will sell at an absurd price that is 25 percent above list price,” said Kim Parmon, senior broker at Living Room Realty.

Mr. Dorman expects interest rates to come down when the recession hits. Buyers brave enough to buy now will be able to refinance their homes at lower interest rates. As interest rates fall in 2023, buyers will return to the market.

Mortgage rates will fall below 6 percent.

The Mortgage Bankers Association’s (MBA) latest Mortgage Finance Forecast predicts a mortgage rate of 5.4% by the end of 2023. Redfin predicts that the mortgage rate will be 5.8% by the end of 2023.

And Lawrence Yoon, chief economist at the National Association of American Realtors (NAR), said a 6% rate would be possible, but only for “people willing to have a five-year repayment period.”

Of course, these are just estimates. Other experts and analysts don’t expect interest rates to be that low. For example, Jeff Tucker, chief economist at Zillow, predicts that mortgage rates will remain at their current levels.

How will inflation affect the housing market in 2023?

Inflation has defined the housing market in 2022 and will do the same in 2023, experts predict.

In response, the Federal Reserve Board raised the benchmark short-term interest rate, the federal funds rate, from 0% to 4.25% in less than a year. Most recently, the Fed announced a 50 basis point rate hike, one step away from four consecutive hikes of 75 basis points.

The Fed is deliberately slowing the pace of growth by raising interest rates. The Fed is making borrowing more expensive by encouraging consumers to save rather than spend. Mortgage rates do not track changes in federal funds rates, but they are responding to inflation, which has declined over the past two months.

But inflation is still well above the Fed’s 2% target. While the Fed has aggressively raised interest rates for most of 2022, it may take months for the effects of their measures to affect the economy. But the housing market tends to be one of the first indicators of what inflation is doing.

“[The housing market] has a small impact on the economy,” Cushy says. “Lower demand in the housing market fuels lower sales. It forces homebuilders to walk away, which leads to lower production. And then demand for durable goods starts to decline. This economic atrophy tends to spread throughout the economy, and the Fed hopes the domino effect will help curb inflation.”

A strong spring 2023 market is ahead.

Farman of Portland, Oregon, predicts that shoppers will wake up as early as Jan. 2, 2023, and decide to go home to shop. Overall, Parmon said earlier this year that he sees several proposed scenarios. This evens out when the stock reaches the summer months for increases.

Dorman also agrees that the spring market will be stronger than the fall market in early 2023. Prices may stagnate or fall in some markets, but the change should be completely different from what we saw in late spring and early summer 2022.

“I think the market will be balanced and slowly rise as interest rates fall in late 2023 or even early 2024,” Dorman said. “Of course, it’s all prediction, and I don’t have a crystal that can predict the future. It’s just an educated guess based on what I see in the market today.

Average home prices will stabilize or fall.

Lawrence Yoon expects home prices to remain stable in 2023, despite the expected decline in home sales in 2023. In fact, he predicts they will rise slightly by 0.3 percent to $385,000.

Other economists, however, have a more gloomy outlook. For example, Redfin expects home prices to fall 4 percent over the next year. In addition, Moody’s Analytics expects many of the most “heavily overvalued” markets to fall 15-20%.

Average rents will rise.

According to the Bureau of Labor Statistics, rents are up 12.2% for new tenants and 3.5% for existing tenants in 2022. In addition, House Canary reported that the average monthly rent in single-family homes was $2,495, a 13.4 percent increase over the same period in 2021.

National Housing Forecast predicts rent prices will rise 6.3 percent in 2023 as renters compete for a limited number of vacancies. In fact, according to the report, the five-month vacancy rate remained below 6 percent for the first time since 1985 because of high home prices and considerable uncertainty in the market.