Expert predictions for what to expect in the 2023 housing market.
The 2022 housing market has been defined by two key things: inflation and rapidly rising mortgage rates. In many ways, it’s put the market into a reset position. 2022 started with the lowest inventory the National Association of Realtors has recorded, dating back to 1999, and one with low mortgage rates. In the first few months of 2022, primary-residence buyers and second-home buyers (investors and vacation buyers) flocked to the market at a frenzied pace under the correct assumption that mortgage rates would rise. The market has now faced a contraction in existing-homes sales for nine consecutive months while home prices and rates rise. The housing affordability crisis has pushed potential buyers to the sidelines.
Unfortunately, the frantic pace of the real estate market at the beginning of 2022, coupled with the affordability crisis and low inventory throughout the year, means first-time buyers were left out. What does that mean for next year? What everyone really wants is more stability in the market in 2023. For that to happen, the Fed has to bring inflation down even more and keep it there. Here’s what housing market experts expect next year:
1. What Will Happen to Home Prices in 2023? Some parts of the country may experience small price gains, while some may see slight price declines. The graph at 2:10 in the video shows the latest home price forecasts for 2023. As the different colored bars indicate, some experts say home prices will appreciate next year, and others say home prices will come down, but if we take the average of all the forecasts, we can get a feel for what 2023 may hold.
For many potential first-time home buyers, 2023 will herald a delayed dream rather than a celebration as home costs exceed what’s possible on their budget and income. As fewer households make the jump to homeownership, increased rental demand could help keep rents moving higher. Lawrence Yun, chief economist at the NAR, expects rent prices to rise 5% in 2023, following a 7% increase in 2022.
In short, home price appreciation will vary by local market. It’s all about supply and demand, but the average is neutral price appreciation for the country.
“Everyone wants more stability in the market in 2023.“
2. What’s Ahead for Mortgage Rates in 2023? While there may be early signs of inflation easing as we round out this year, we’re not out of the woods just yet. Inflation is still something to watch out for in 2023.
Experts are factoring all of this into their mortgage rate forecasts for next year, and if we average those forecasts together, experts say we can expect rates to stabilize a bit more in 2023. Whether that’s between 5.5% and 6.5%, it’s hard for experts to say precisely where they’ll land. However, based on the average of their projections, a more predictable rate is likely ahead.
Generally speaking, when we’re talking about the overall health of the housing market, the slow and steady real estate markets in the Midwest, where homes continue to be affordable, will be the stars in 2023.
The truth is, people are motivated to buy and sell for multiple reasons; it’s less about the interest rate or mortgage rates that week and more about their present situation and whether they can afford a house that fits their needs.
If you have any questions about today’s topic or are considering buying, selling, or investing in 2023, please reach out. I’d love to help in any way I can!