Home on a residential street

What to Expect From the 2023 Housing Market

No one would argue against the fact that the 2022 housing market was a seller’s market. Due to low housing inventory, home prices soared until the Federal Reserve hiked interest rates, leading to a historic mortgage rate spike. Then, June brought the end of the pandemic housing boom.

Where does this roller coaster of a market leave us as we head into 2023? This article examines some of the most important indicators from the 2022 housing market and what these factors can tell us to expect in the new year.

Will Home Prices Rise or Fall?

In 2023, Realtor.com expects the rate of nationwide home price growth to slow to an average of 5.4% year-over-year compared to 10.2% in 2022. With mortgage rates no longer at their pandemic lows, home purchases also cooled off. 

As a result, home prices are expected to fall farthest in pandemic boom towns such as Austin, Boise, and Phoenix, as well as in pricey West Coast cities.

Conversely, Forbes predicts Atlanta, Raleigh, and Dallas will be the top 3 real estate markets in 2023. These areas all experienced strong job growth in 2022, are relatively affordable, have remote working opportunities, and have renters who can afford to purchase homes.

There are some experts who predict home prices will fall, but only slightly. Marr and Olsen of Redfin and Zillow, respectively, predict a small drop of 0.5% – 4%. What most experts do agree on is that mortgage rates and inflation will be the most important factors in determining the trajectory of home prices. 

Home with "SOLD" sign

A 2023 Real Estate Market Crash is Unlikely

The Federal Reserve indicated that in 2023 the U.S. will face “higher unemployment, slower growth, and higher inflation”, USA Today reports. However, despite the discouraging outlook shared by USA Today and others, there are far more signs pointing to an economic correction or mild recession rather than a market crash.

The housing market is also expected to undergo a recession and not a crash. To arrive at this conclusion, experts analyzed the conditions preceding the 2008 financial crisis. Many of those conditions, which created a ‘perfect’ economic storm, are notably absent today.

Today’s homeowners have historically high equity, lower household debt, and are generally on more stable financial footing. This resulted in a notable lack of foreclosures and distressed property sales. Additionally, rules and regulations implemented since 2008 reduce the risk associated with mortgaged homes.

All of these indicators point to an economic downturn that Americans, and the housing market, can and will bounce back from.

Low Housing Inventory, Persisting High Prices

Sellers will not experience the same competition for their homes as they did in 2022, but persisting affordability challenges will prevent the housing market from becoming a “buyer’s market”.

Rather, it may become nobody’s market, neither weighted in favor of buyers nor sellers. Those who bought homes in recent years at extremely low mortgage rates are staying put, reducing the availability of housing for buyers. In 2023, NAR Chief Economist Lawrence Yun predicts that high inflation and mortgage rates will cause the national median home price to increase by a meager 1% while home sales will decline by 7%. 

Meanwhile, buyers and sellers are at a disconnect. Buyers want to lowball their offers while sellers are still demanding 2021 prices for their homes. Therefore, agents will need to work with sellers and buyers to create more realistic expectations that match the current market.

Renting vs. Buying Trends

Realtor.com reports the national quarterly rental vacancy rate hovered between 5.6% and 6% since the second half of 2021, compared to +6% historically. 

These rates slowly ticked back up at the end of 2022, and they’re predicted to slowly increase through 2023. However, renters will likely continue to face challenges and increasing prices due to a high demand and low supply.

Despite inflated rent costs, ever-growing home prices and high mortgage rates mean fewer people are making the jump from renting to owning.

Additionally, although the national average income is expected to grow at a faster-than-normal rate of 3.9%, it is not expected to outpace the expected inflation rate of 4.1%. This means first-time homebuyers will be at a significant disadvantage as they are less likely to have the savings needed to make their first down payment on a home.

For those who are looking to purchase a home, affordability is expected to be the top priority, taking precedence over other considerations such as location. This trend is exemplified in an increase in cross-market views: in the third quarter of 2022, nearly 61% of listing views went to homes listed in other metropolitan areas than the one the buyer occupied. A survey conducted by Opendoor.com of a nationally-representative sample of +1,000 homeowners also found affordability to be a primary concern among home buyers in 2022. 49% of respondents cited “an affordable cost of living” as their main motivation to move.

Sellers standing in front of house

Opinions Differ on Mortgage Rate Trajectory

Dennis Shirshikov, an economics and finance professor at City University of New York and economic strategist at Awning.com, predicts that “continued inflation, overall higher interest rates, a potential recession, and geopolitical tensions will force 30-year and 15-year mortgage rates up throughout 2023” to an average of 8.75% and 8.25%, respectively.

On the other hand, Rick Sharga, executive vice president of Market Intelligence for ATTOM Data Solutions, optimistically predicts that rates will peak in early 2023 at about 8% and 7.25% for 30-year and 15-year loans respectively before gradually decreasing throughout the year to settle between 6.0% and 5.25%, respectively. He adds that this prediction “is entirely dependent on the Federal Reserve’s ability to get inflation under control and ease up on its aggressive rate increases.”

2023 Real Estate Market Takeaway

Agents shouldn’t have to worry about another housing crash like the one we experienced in 2008. Here are a few key takeaways that may help agents know what to expect as we move into the New Year:

  • 2023 is likely to be a transitional year with lower demand for homes tempered by a limited supply of sellers and new construction.
  • Those who purchased homes during the pandemic are not eager to sell. 
  • If home supply and demand normalizes, interest rates may begin to lower. 
  • The number of home equity loans are likely to increase. 
  • Those waiting to take the leap from renting to owning a home may have to wait a little longer.

With these factors in mind, agents can expect to have more success in locations with strong job growth and more affordable properties. However, no matter where you’re located, you can still level up your business and make 2023 a successful year. Read about 6 ways to do so here.

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