2023 Real Estate Market Forecast: Positive Possibilities and a Gradual Return to Normalcy
The 2022 housing market was defined by two factors: inflation and rising mortgage rates. In many ways, the year put the market into a reset position. But what exactly does that mean for 2023?
2023 Rate Predictions
Would-be buyers have asked a major question: Am I better off to just keep waiting for rates to come down?
The answer isn’t necessarily the resounding “yes!” that many anticipate.
As rates decrease, the price of homes is likely to increase. Borrowers could secure a lower home price by acting now and simply refinancing for a better rate in the future.
Dr. Lawrence Yun, NAR’s Chief Economist, believes mortgage rates may have already peaked. He points to an “abnormally high spread” between 30-year fixed-rate mortgages and the Treasury, which historically are more closely tied together.
The consumer price index, which measures a wide basket of goods and services, rose less than expected in November 2022, a positive indicator that the runaway inflation that has been gripping the economy is beginning to loosen up.
And while media headlines often provide a national perspective, it’s important to recognize that the housing market varies regionally.
Projected Housing Prices
Selma Hepp, CoreLogic’s interim chief economist, summarized buyer and seller perspectives in a recent interview: “Sellers are contending with not wanting to reduce their prices,” Hepp said. “Buyers are seeing the headlines saying that prices will come down but are also finding their purchasing power has been diminished by higher mortgage rates. They’re wondering: ‘Should I even enter the market? I may end up with negative equity.’”
“Foreign buyers were largely absent for the past two years because of the international travel restrictions, but this will pick up next year,” forecasts Dr. Yun. “Anticipate more foreign buyer activity, and they tend to be all cash, so keep that in mind.”
“With continuing job creation, a new set of first-time buyers, and an increased presence of foreign buyers, I just don’t see sales numbers declining.”
Experts agree that instead of waiting for dramatically lower prices, it’s best to buy a home that fits your current budget and needs. And while making too many sacrifices for the sake of a new home can quickly lead to buyer’s remorse, it’s still well within the realm of possibility that many borrowers can find a home that checks the boxes on their wishlist.
Housing Inventory Forecast for 2023
Historically low housing supply levels have held up demand more than other downturns, consequently sustaining elevated home prices.
At the current sales pace, inventory is at a 3.3-month supply, according to NAR.
“[This] is about half of what we’d like to see normally,” says Rick Sharga, executive vice president of market intelligence at ATTOM Data. “And we still have pent-up demands based on demographic trends.”
“Inventory levels are still tight, which is why some homes for sale are still receiving multiple offers,” Dr. Yun said.
“The ongoing housing supply challenges will prevent home prices from falling, though price appreciation will slow,” he added. “I see many hopeful signs for early next year.”
2023 Will Not Be a Repeat of 2008
Experts are quick to point out that today’s homeowners stand on much more secure footing than those coming out of the 2008 financial crisis, meaning that the likelihood of a housing market crash is low.
“Homeowner equity is at the highest level it’s been in the past several decades, so homeowners have a lot of value in their home,” says Nicole Bachaud, an economist at Zillow.
Bachaud also notes that mortgage products have become less risky.
“There are a lot more regulations and restrictions in the mortgage market that make it a lot stronger, and less volatile and less risky than it was in the market after 2008,” she says.
A housing market crash would constitute a 20-30% drop in home prices and a dramatic decline in home sales. Another missing crash symptom would be a notable jump in foreclosure activity.
Closing Thoughts
The nation’s overall housing supply remains limited, as those who purchased homes in recent years at extremely low mortgage rates are staying put. But even though home prices remain high year-over-year, the difference isn’t as dramatic as it was in early 2022. Any decreases in home prices in 2023 will likely depend on a variety of factors, including mortgage rates, supply, and the regional economy.
Buying a house in any market is a highly personal decision. A home represents the largest single purchase most people will make in their lifetime, making it crucial to be in a solid financial position before diving in.
Using a mortgage calculator to estimate your monthly housing costs based on your down payment and interest rate is a great place to start before reaching out to your trusted loan officer to discuss your financial strategy for 2023.