Housing Market Predictions 2023
Will house prices go down in 2023? Depending on who you ask, the forecast for 2023 is mixed. Most experts in the housing industry predict less buyer demand, lower prices, and higher borrowing rates. Rate increases, along with a shortage of availability, have pushed many purchasers to the sidelines. Home prices may fall slightly, but not drastically as they did in 2008. Some believe that the housing market will continue to outperform compared to the pre-pandemic.
Hence, there is no clarity regarding the housing market forecast for 2023. Most analysts predict that home prices will grow in the majority of the housing markets next year albeit slightly. If inflation persists, the Fed could tighten more than anticipated by the financial markets. This would result in higher mortgage rates, which will impact the U.S. housing market. If inflation falls or a recession develops in the near future, the Fed may soften financial conditions.
In its most recent prediction, Fannie Mae reiterated its opinion that the housing market will push the United States into recession at the beginning of 2023. According to their estimate, home prices could fall in 2023. The slowing effect of rising mortgage rates on the housing market has been mostly predicted, and home values appear to have already begun to trend downward. Looking ahead to the entire year 2023, the ESR group predicts a 1.5% fall in national home prices.
While Zillow predicts that home values will rise in most markets over the next 12 months, it does not expect much growth in the remaining months of 2022. It predicts that home values will fall in 271 markets over the next twelve months. In August, the rate of drop in U.S. home prices was comparable to that of the previous month (FHFA House Price Index).
This is the first time since March 2011 that the index has declined for two consecutive months, according to Will Doerner, Ph.D., a Supervisory Economist with the FHFA's Division of Research and Statistics. Higher mortgage rates continued to exert pressure on demand, significantly slowing the growth of home prices in the nation.
<<<Also Read: Lastest National Housing Market Trends>>>
Will Home Prices Drop in the United States?
Here's when home prices can drop. While this may appear to be oversimplified, it is how markets work. Prices drop when demand is met. There is now an excessive demand for houses in several property markets, and there simply aren't enough homes to sell to prospective purchasers. Home construction has increased in recent years, although they are still far behind. Thus, big drops in housing prices would necessitate considerable drops in buyer demand.
Demand falls mostly as a result of higher interest rates or a general weakening of the economy. Rising interest rates would ultimately need far less demand and far more housing supply than we now have. Even if price growth slows this year, a drastic fall in home prices is quite unlikely. As a result, there will be no fall in house values; rather, a pullback, which is natural for any asset class. In the United States, house price growth is forecasted to just “moderate” or slow down in 2022 as well as 2023.
Housing supply will decrease in 2023 to maintain upward pressure on home prices as single-family homebuilding sees a decline next year. In October, the NAHB homebuilders group announced that homeowner confidence has dropped for the tenth consecutive month. According to Robert Dietz, chief economist for the National Association of Home Builders, despite a modestly increased inventory that is mostly attributable to price-weary prospective buyers, housing supply is projected to stay limited in 2023.
As higher interest rates and ongoing elevated construction costs continue to price out a large number of prospective buyers, the single-family homebuilding industry will experience a sharp decline in 2023. “This will be the first year since 2011 to see a decline for single-family starts,” said NAHB Chief Economist Robert Dietz. Some analysts have stated that the housing market is now more ‘balanced,' but according to Dietz, the homeownership rate will drop in the next quarters as rising interest rates and building costs continue to price out a substantial proportion of prospective buyers.
According to Mortgage News Daily, the interest rate on a 30-year fixed mortgage was 7.29% on Monday. This marks the highest 30-year rate in the past 20 years. “Nobody anticipated this turn of events. We had anticipated an interest rate of no more than 5%, and certainly not 7%, “added Evangelou, who went on to say that the National Association of Realtors had to make many adjustments to its forecast throughout the course of this year.
According to the study published by the organization, the median sales price of a home in the United States was $384,800 in September. This is an increase of 8.4% from the price of $355,100 in September 2021. Prices increased across the board. Evangelou stated that assuming a down payment of 10%, the monthly mortgage payment is now $1,000 more expensive than it was a year ago.
If you are new to the housing market, you should familiarise yourself with the following: contingency, foreclosure, and housing market projections. Jerome Powell, the chair of the Federal Reserve, stated earlier this month that the housing market may require “a correction” in order to make homes more affordable.
Nationally, the U.S. housing market has experienced positive annual appreciation each quarter since the start of 2012. Between the second quarters of 2021 and 2022, all 50 states and the District of Columbia saw an increase in housing prices. In today's housing market of high mortgage rates, buyers are still driving up property prices, leading homes to sell rapidly. During this pandemic, we saw hyperactive buyers make offers without seeing the property and forego contingencies to win bidding wars in the highly competitive housing market.
The historically low mortgage rates fueled an increase in demand, particularly among millennials. However, they are running into a shortage of available housing and now have to face higher rates of close to 6%. Many buyers are still in hope of finding a home that fits their budget and needs. Despite popular belief that now is not a good time to buy, many home buyers are looking to lock in their monthly housing payments.
Although the housing market is still expected to favor sellers we appear to be at a tipping point in the housing market, where prices have risen so dramatically that buyers are backing off and home sales are slowing down considerably as compared to last year. House prices fell nationwide in August, down 0.7 percent from the previous month, according to the latest Federal Housing Finance Agency House Price Index (FHFA HPI®).
House prices rose 11.9 percent from August 2021 to August 2022. The previously reported 0.6 percent price decline in July 2022 remained unchanged, For the nine census divisions, seasonally adjusted monthly house price changes from July to August 2022 ranged from -2.0 percent in the Mountain division to +0.4 percent in the New England division. The 12-month changes were all positive, ranging from +7.4 percent in the Pacific division to +16.2 percent in the South Atlantic division.
Home Prices Are Rising: Quarterly Report (Q2 2022)
U.S. home prices rose 17.7 percent from the second quarter of 2021 to the second quarter of 2022 according to the Federal Housing Finance Agency House Price Index (FHFA HPI®). House prices were up 4.0 percent compared to the first quarter of 2022. FHFA’s seasonally adjusted monthly index for June was up 0.1 percent from May.
“Housing prices grew quickly through most of the second quarter of 2022, but a deceleration has appeared in the June monthly data” said William Doerner, Ph.D., Supervisory Economist in FHFA’s Division of Research and Statistics. “The pace of growth has subsided recently, which is consistent with other recent housing data.”
Note: The report for the third quarter will be released by the end of November.
Key Housing Prices Trends
- Nationally, the U.S. housing market has experienced positive annual appreciation each quarter since the start of 2012.
- House prices rose in all 50 states and the District of Columbia between the second quarters of 2021 and 2022.
- House prices rose in all of the top 100 largest metropolitan areas over the last four quarters.
- Annual price increases were most significant in North Port-Sarasota-Bradenton, FL, where prices increased by 36.4 percent
- Prices were weakest in Washington Arlington-Alexandria, DC-VA-MD-WV (MSAD), where they increased by 9.1 percent.
- Of the nine census divisions, the South Atlantic division recorded the strongest four-quarter appreciation.
- It posted a 23.0 percent gain between the second quarters of 2021 and 2022 and a 5.2 percent increase in the second quarter of 2022.
- Annual house price appreciation was weakest in the West North Central division, where prices rose by 13.9 percent between the second quarters of 2021 and 2022.
Home Prices Increasing the Fastest in these States?
- Florida 29.8 percent
- Arizona 25.5 percent
- North Carolina 25.2 percent
- Montana 24.9 percent
- Tennessee 24.3 percent
Where Are Home Prices Increasing the Slowest?
- District of Columbia 5.2 percent
- North Dakota 10.6 percent
- Louisiana 10.8 percent
- Minnesota 11.3 percent
- Maryland 12.0 percent
Housing Market Forecast 2023: Will Home Prices Drop in 2023?
Homeowners, sellers, buyers, and renters may be unimpressed in 2023. As mortgage rates rose in 2022, home sales slowed, leading to a decrease in home price rise and moving the housing market balance away from sellers. A slowing in home price increase won't be enough to make the housing market a buyer's bonanza as mortgage rates continue to rise as the Fed guides the economy to a soft-ish landing.
Homebuyers will benefit from a growing number of homes for sale, but costs will stay high, limiting affordability as budgets tighten. If buyers and sellers have unreasonable expectations, 2023 could be a stalemate. According to Realtor.com, 2023 could be a “nobody's-market” for buyers and sellers. Consumers who are ready for the challenge will need up-to-date information on market conditions, creativity and flexibility to adjust, and a healthy dose of patience in order to create success.
Buyers will have some things to look forward to in 2023. There will be more homes for sale, homes will likely take longer to sell, and buyers will not encounter the intense competition that has been usual in recent years. However, affordability issues keep 2023 from being a huge buyer's market, particularly for first-time homebuyers who have already endured significant problems.
Home sellers should be aware that fewer buyers are projected to be looking for a property in 2023, as rising home prices and mortgage rates drive some prospective purchasers to postpone their purchases. As a result, sellers should expect increased competition from other for-sale postings, lengthier transaction timescales, and more bargaining with buyers.
Here's the forecast for key housing indicators by Realtor.com:
- 1. Mortgage Rates: 7.4% (avg) and 7.1% (year-end)
- 2. Existing Home Median Price Appreciation (Y/Y): +5.4%
- 3. Existing Home Sales (Y/Y | Annual Total): -14.1% to 4.53 million
- 4. Existing Home For-Sale Inventory (Y/Y): +22.8%
- 5. Single-Family Home Housing Starts (Y/Y | Annual): -5.4% to 0.9 million
- 6. Homeownership Rate: 65.7%
- 7. Rent Growth: +6.3%
Zillow’s home value forecast remained unchanged in October, as the housing market continued to slow amid rising mortgage rates and broader economic uncertainty. The home value growth will continue to slow over the coming months. According to Zillow's monthly home value forecast, the national Zillow Home Value Index, which climbed by 12.9% in the twelve months ending in September 2022, is predicted to increase by just 1.3% in the next twelve months ending with September 2023.
This forecast is consistent with last month's predictions, which predicted a 1.2% annual growth. And while Zillow anticipates a slowing of national home price growth to 1.4%, it will vary significantly by the regional markets. A weaker outlook for home sales also factors heavily into the lower forecast for home value appreciation.
Zillow’s home sales forecast now calls for 5.2 million existing home sales in 2022, up slightly from last month’s expectations for 5.1 million sales following a better-than-expected reading on home sales in August. Recent decreases in mortgage applications and pending house sales indicate that there are substantial negative risks to home sales volume in the calendar year 2023.
Metros Where House Prices Will Drop Most by September 2023
Some regional markets are projected to see home price declines. In August, Zillow economists predicted that 123 regional housing markets would see declining home values in the coming year. The number was later revised to 259 regional markets by Zillow economists in September. They now predict that home values will fall in 271 of the nation's 896 regional housing markets between September 2022 and September 2023. Fairbanks tops the list with the highest anticipated decline of 7%.
|Metro Area||Change in Values|
|Red Bluff, CA||-4.9%|
Metros Where House Prices Will Increase Most by September 2023
Zillow still predicts that the vast majority of regional housing markets will see home values appreciating in 2023. Among the 897 regional housing markets that Zillow economists analyzed, 607 are predicted to see rising house prices between Sept 2022 and Sept 2023. Another 19 markets are predicted to remain flat.
Among the regions that are anticipated to have losses in value over the coming year are those that have experienced some of the largest increases in property values over the past year. Only one market in Ohio and one in Washington are forecasted to see year-over-year house price growth of 10% or greater.
|Metro Area||Change in Values|
According to Moody's Analytics' proprietary housing data, as reported by Fortune, home prices will rise 0% next year (2023), a significant decrease from the 19.7 percent price growth experienced by the housing market in the previous year. Analysts predict that price changes will vary significantly across the United States. Moody's predicts that home prices will rise in 183 of the country's 414 largest housing markets in 2023 while falling in 231 others.
According to Moody's analysts, the following five cities will see the greatest year-on-year increases in home prices in 2023:
- Albany, Georgia (4.12 percent)
- New Bern, North Carolina (4.12 percent)
- Augusta, Georgia (3.84 percent)
- Hartford, Connecticut (3.73 percent)
- Casper, Wyoming (3.29 percent)
The company's analysts expect home prices to drop the lowest in these areas in 2023:
- The Villages, Florida (6.96 percent)
- Punta Gorda, Florida (6 percent)
- Reno (5.57 percent)
- Honolulu (5.56 percent)
- Spokane, Washington (5.52 percent)
Researchers at Goldman Sachs published a study on August 30 with the title “The Housing Downturn: Further to Fall.” The investment bank's most recent projections indicate that overall activity in the United States home market will be lower by the end of 2022. The company anticipates significant drops in new home sales (down 22% from last year), existing home sales (down 17% from last year), and housing GDP (down 8.9% from last year). And you shouldn't anticipate any relief in the year 2023. Goldman Sachs forecasts additional drops in housing-related metrics such as new home sales (another 8% drop), existing home sales (another 14% loss), and housing GDP (another 9.2% drop) in 2023.
Housing Markets at High Risk of Price Decline in 2023
The CoreLogic Home Price Insights report features an interactive view of our Home Price Index product with analysis through August 2022 with forecasts through August 2023. Home prices nationwide, including distressed sales, increased year over year by 13.5% in August 2022 compared with August 2021.
On a month-over-month basis, home prices declined by 0.7% in August 2022 compared with July 2022. The CoreLogic HPI Forecast indicates that home prices will increase on a month-over-month basis by 0.0% from August 2022 to September 2022 and on a year-over-year basis by 3.2% from August 2022 to August 2023.
The CoreLogic Market Risk Indicator (MRI), a monthly update of the overall health of housing markets across the country, predicts that Bremerton-Silverdale, WA is at very high risk (70%-plus probability) of a decline in home prices over the next 12 months. Bellingham, WA; Boise City, ID; Crestview-Fort Walton Beach-Destin, FL and Olympia-Tumwater, WA are also at very high risk for price declines.
Will Housing Demand Exceed Supply, Raising Prices in 2023?
The broader outlook from several housing analysts is that housing demand will continue to surge due to several factors. For e.g; the millennials have aged into their prime homebuying years, and they are now the fastest-growing segment of home buyers. In 2018, millennial homeownership was at a record low but the situation has changed markedly. They are no longer holding back when it comes to homeownership.
According to the National Association of REALTORS’ Home Buyers and Sellers Generational Trends Report, millennials make up the largest share of the homebuying population at 43 percent, the most of any generation – an increase from 37% last year. They are also the most likely generation to use the internet to find the home they ultimately purchase and most likely to use a real estate agent.
The NAR report found that the combined share of younger millennials (23 to 31 years old) and older millennial buyers (32 to 41 years old) rose to 43% in 2021, up from 37% the year prior. Nearly two-thirds of younger millennials, or 65%, located the property they ultimately purchased online, a proportion that steadily declines with older generations. Eighty-seven percent of homebuyers utilized a real estate agent. This percentage was highest among younger millennials (92%) and older millennials (88%).
The study also found that first-time home buying among younger generations is on the rise, with over 4 out of 5 younger millennial home buyers – 81% – purchasing for the first time. Just under half – 48% – of older millennial buyers were first-time buyers. There is a surge of millennial buyers who are maturing into the conventional first-time buyer age bracket. Boomers comprised the highest proportion of house sellers at 42 percent, however, the ratio of millennial sellers has increased from 22 percent to 26 percent over the last year.
Millennials are expected to continue to drive the market and the participation of first-time homebuyers and older millennials is widely forecast to be elevated. Hence, housing prices cannot drop drastically in 2023. Inflation, excessive housing demand, and inadequate supply continue to drive up prices. Recent revisions by economists at Realtor.com have increased their 2022 median sales price appreciation projection for existing properties to 6.6 percent from 2.9 percent.
Many people have been priced out of the housing market by rising rents and rising mortgage rates, which have risen from an average of just 3.2% at the beginning of the year to 5.81% by mid-June. Mortgage rates then topped 7 percent in the last week of October, the highest level in 20 years. This has resulted in a decrease in property sales since more individuals are unable to pay the present high costs. Theoretically, home prices should fall for the remainder of this year and into 2023.
For starters, rising borrowing prices make credit more unaffordable. Second, as the economy continues to deteriorate, mortgage lenders are expected to approve fewer applicants. Although the housing market appears to be headed in the wrong direction, there are some bright spots. Economic forecasters, despite the recent recession, continue to expect robust demand from purchasers (millennials) and high home price increases in the housing market.
With homebuyers active and supply still lacking, the current trend of home prices will not see a reversal. In the last quarter of half of 2022, we are seeing a gradual shift in the real estate market away from sellers to more balanced conditions, with a rise in the number of properties entering the market. Existing-home sales descended in September, the eighth month in a row of declines. The market is heading to cool off, but house prices will not necessarily fall like crazy.
“The housing sector continues to undergo an adjustment due to the continuous rise in interest rates, which eclipsed 6% for 30-year fixed mortgages in September and are now approaching 7%,” said NAR Chief Economist Lawrence Yun. “Expensive regions of the country are especially feeling the pinch and seeing larger declines in sales.”
“Despite weaker sales, multiple offers are still occurring with more than a quarter of homes selling above list price due to limited inventory,” Yun added. “The current lack of supply underscores the vast contrast with the previous major market downturn from 2008 to 2010 when inventory levels were four times higher than they are today.”
Despite a sluggish market and waning buyer enthusiasm, we anticipate that home demand will continue to outstrip available inventory. Increasing rental costs should add to this expected development. However, as the number of available homes increases, the demand for housing should decrease owing to affordability concerns. As a result, we are not on the verge of a housing market crash. The current rate of home price growth is unsustainable, and higher mortgage rates combined with increased inventory will result in slower home price growth but unlikely any big price decline.