Housing Market Predictions & Forecasts
Will a seller's market be prevalent in real estate in the future due to increasing demand and limited supply? Housing demand is influenced by interest rates, unemployment, home price inflation, income growth, the availability of easy credit, etc. The economy is predicted to grow in the next years, pre-pandemic working conditions will return, and a range of other factors will most likely contribute to the success of the housing market.
Home prices are still rising year after year, though not as dramatically as they were earlier this year. The level of mortgage rates in 2023 will most likely influence how much home values fall. The real estate markets are significantly impacted by interest rates because as interest rates fall, so do mortgage payments, increasing demand for real estate and driving up prices.
The housing market saw an incredible year last year, with record-low interest rates, the strongest yearly growth in single-family values and rentals, a generational low in foreclosure rates, and the highest number of home sales in 15 years. As numerous buyers battled for the winning bid, house sellers witnessed a market in which their properties sold rapidly and frequently for prices over the listing price.
2022 was also predicted to be a prosperous year for the housing market but rising inflation and mortgage rates changed its outlook completely. Compared to the previous year, the housing market has significantly cooled, with home sales declining and prices rising at a moderate rate. In this blog post, we will discuss the latest housing market predictions for 2023.
Also Read: US Housing Market Trends in December 2022
There are still many concerns regarding the housing market. Critically, despite the fact that shortage of supply has been one of the primary drivers of home price growth, rising interest rates are deterring both potential sellers and new construction. As a result, there is no hope for an improvement in the housing supply and a sustainable housing market that would result from an increase in inventory.
The large and sudden increase in mortgage rates that occurred this year rendered an already expensive housing market far less affordable. Home prices experienced a meteoric rise in the early years of the pandemic for a number of reasons, including the fact that demand was at an all-time high, supply was at an all-time low, and mortgage rates reached a number of all-time lows.
The current housing market trends indicate buyers remain interested, keeping the market somewhat competitive, especially for attractive, well-priced homes. However, some factors may influence the market's pace or whether it favors buyers or sellers. Higher mortgage rates and recession fears have cooled housing markets from early spring highs. The market is shifting away from sellers to more balanced conditions.
A little pressure on home price growth will continue through the end of the year, and housing prices will continue to rise due to a supply-demand mismatch. Many experts predicted that the pandemic would result in a housing crash comparable to the Great Depression. That, however, will not happen. Housing prices are unlikely to fall drastically, but they are expected to rise very slowly as compared to last year's pace.
Housing Market Predictions 2023
There is little consensus among economists, mortgage firms, banks, and real estate firms regarding whether the historically tight U.S. housing market will reverse course in 2023. The accounting firm KPMG LLP forecasts that the U.S. housing market would decline by as much as 20% between 2022 and 2023. Goldman Sachs and Wells Fargo estimate the market will decline by 7.5% and 5.5%, respectively. Real estate companies are not optimistic.
The real estate investment firm Amherst predicted a 5% fall in the market, while Redfin predicted a 4% decline. Even federal mortgage supporters Freddie Mac and Fannie Mae anticipate a 0% to 2% decline in the market. On the other side, the Mortgage Bankers Association anticipates a 0.7% increase in the housing market, while CoreLogic predicts a 4.1% increase. Realtor.com forecasts a 5.4% increase, the National Association of Realtors forecasts a 1.2% increase, and Home.LLC forecasts a 4% increase.
Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors, predicts that 4.78 million existing homes will be sold, prices will remain constant, and Atlanta will be the top real estate market to monitor through 2023 and beyond. Half of the country may witness minor price increases, while the other half may see minor price decreases.
Housing sales will decline by 6.8% compared to 2022 (5.13 million) and the median home price will reach $385,800 – an increase of just 0.3% from this year ($384,500). In 2023, the NAR's top 10 housing markets will include Atlanta, Raleigh, Dallas, Fayetteville, Ark., and Greenville, S.C., in addition to five new metropolitan regions.
As housing demand continues to decelerate and both buyers and sellers attempt to regain their footing, it is important to remember that the surge in housing demand in 2021 was fueled by unusual circumstances, such as COVID-19-induced demand for more space and vacation homes, as well as record-low mortgage rates.
The positive outlook is that most real estate firms do not predict a financial or foreclosure crisis on the scale of 2008, but they do expect housing fundamentals to return to the mean. Some of that moderation will be brought about by growing salaries, while some will be brought about by declining home prices. The housing market won't be overvalued after this correction is over.
CoreLogic’s most recent Loan Performance Index shows that, despite 2022’s surge in mortgage rates, almost all borrowers were able to meet their monthly payments during the year. For the first 10 months of 2022, the number of homeowners with a mortgage who were at least 30 days late on their payments hovered between 3.4% and 2.7%, with the latest data reporting a 2.8% overall delinquency rate in October. On an annual basis, mortgage delinquencies dropped for the 19th consecutive month in October.
Foreclosure rates remained near record lows throughout most of 2022, bottoming out at 0.2% in February and remaining at 0.3% through October. The fact that 99% of borrowers have locked in a mortgage rate that is lower than current rates helps prevent most homeowners from making late payments or defaulting on them altogether.
The firm that has a bullish forecast for 2023 includes Zillow. The latest housing forecast produced by Zillow economists has U.S. home values falling just 1.1% between November 2022 and November 2023. Meanwhile, the relatively bearish camp includes firms like Moody's Analytics. Its forecast has national home prices falling 5.1% between the fourth quarter of 2022 and the fourth quarter of 2023. Among the 897 markets Zillow measured, it expects 658 markets to see falling home prices between November 2022 and November 2023.
That includes markets like San Jose (-7.2% projection); Grand Forks, N.D. (-6.7%); Odessa, Texas (-6.4%); San Francisco (-6.1%); and Santa Rosa, Calif. (-5.3%). Meanwhile, Zillow expects 239 markets to see positive or flat home price growth between November 2022 and November 2023. That includes markets like Atlantic City, N.J. (+4.2% projection); Homosassa Springs, Fla. (+4.2%), and Yuma, Ariz. (+3.7%).
According to the latest report published by Fortune, the ongoing home price correction—which saw U.S. home prices decrease 2.4% between June and October—has been moderate. However, economists and experts disagree on whether this is a modest setback for home price increases or the start of a sharper correction.
According to the forecast by Moody's Analytics, the national home prices will fall 5.1% between the fourth quarter of 2022 and the fourth quarter of 2023. Peak-to-trough, Moody's expects U.S. home prices to fall 10%. Among the 322 regional housing markets analyzed by Moody's, 178 markets are expected to see at least a 5% decline in home prices between the fourth quarter of 2022 and the fourth quarter of 2023.
That includes markets like Morristown, Tenn. (-10.3% projection), Pocatello, Idaho (-9.9%), Muskegon, Mich. (-9.7%); Boise (-9.5%), and Santa Cruz, Calif. (-8.8%). Peak-to-trough, Moody's expects U.S. home prices to fall 10%. Keep in mind when a group like Zillow or Moody's Analytics says “U.S. home prices,” they're talking about an aggregated view of the country. In regional housing markets—heck, in each neighborhood—the results could vary significantly.
Low inventories will prevent home prices from declining. Strong job growth, low inventories, and tight supply will cause unequal price movements. Lower price tiers are more susceptible to interest rate hikes, while higher price tiers are more resistant to price decreases. The mix of homes that sell may be smaller on average as the market reacts to increasing mortgage rates and decreased affordability.
Housing Price Trends & Forecast Until November 2023
CoreLogic HPI™ is designed to provide an early indication of home price trends. The CoreLogic Home Price Insights report features an interactive view of its Home Price Index product with analysis through November 2022 with forecasts through November 2023. United States home prices nationwide, including distressed sales, increased year over year by 8.6% in November 2022 compared with November 2021.
On a month-over-month basis, home prices declined by 0.2% in November 2022 compared with October 2022. The CoreLogic HPI Forecast indicates that home prices will decrease on a month-over-month basis by 0.1% from November to December 2022 and on a year-over-year basis by 2.8% from November 2022 to November 2023.
The report also shows that in November, year-over-year home price growth stopped its 21-month stretch of double-digit momentum with an 8.6% increase, the lowest rate of appreciation in precisely two years. In spite of the fact that 16 states defied the national trend and experienced double-digit yearly price rises, appreciation is slowing in many of the nation's most desirable housing areas. The Southeastern states still topped the nation in terms of price rise, but they also experienced some of the most dramatic cooling.
Comparatively, somewhat more costly Western regions have also experienced significant reductions in recent months after the spring peak. Nationwide, the recent price deceleration pushed November home values 2.5% below the spring 2022 peak. In 2023, home values will likely move even further from that high point, as CoreLogic expects price growth to begin recording negative year-over-year readings in the second quarter.
No states posted an annual decline in home prices. The states with the highest increases year over year were Florida (18%), South Carolina (13.9%), and Georgia (13.6%). These large cities continued to experience price increases in November, with Miami again on top at 21.3% year followed by Houston at 10.6%, Phoenix at 8.1%, and Las Vegas also at 7.7% year over year.
Top Markets at Risk of Home Price Decline in 2023
The CoreLogic Market Risk Indicator (MRI), a monthly update of the overall health of housing markets across the country, predicts that Bellingham, WA is at very high risk (70%-plus probability) of a decline in home prices over the next 12 months. Crestview-Fort Walton Beach-Destin, FL; Salem, OR; Merced, CA and Urban Honolulu, HI are also at very high risk for price declines.
CoreLogic Market Risk Indicators is a multi-phase regression model that provides a probability score (from 1 to 100) on the likelihood of two scenarios per metro: a >10% price reduction and a ≤ 10% price reduction. The higher the score, the higher the risk of a price reduction. CoreLogic is a leading global property information, analytics, and data-enabled solutions provider.
Housing Market Forecast & Sentiment 2023 (Freddie Mac)
According to Freddie Mac, there are currently 18 percent more persons aged 25 to 34 than there were in 2006. This represents an increase of 6.6 million prospective first-time homeowners, from 39.5 million in 2006 to 46.1 million today. In addition to the increase in first-time homebuyers, the number of high-income renters who can afford to buy and are of prime first-time homebuyer age has also been growing.
In 2006, lending criteria were significantly loosened, and little examination was done to determine whether or not a borrower could repay their loan. These days, the requirements are more stringent, which lowers the risk for both the lenders and the borrowers. Consistent with a more challenging housing market for buyers, the share of buyers that faced at least one mortgage denial before getting approved grew from 22% in 2020 to 34% in 2021.
The government and jumbo segments had the most significant tightening in the previous month. These two housing markets couldn't be more different from one another, and the current situation is in no way comparable to that of the past. The Mortgage Credit Availability Index (MCAI) is an index that is released regularly throughout the year by the Mortgage Bankers Association (MBA). This index is used to measure how simple it is to get a mortgage.
The higher the index is, the more options there are for obtaining mortgage finance. In 2004, the index was hovering around the 400 mark. As the housing market heated up, mortgage loans became more available, and then in 2006, the index surpassed 850. The mortgage credit availability index (MCAI) fell as a result of the fall in the real estate market since it became nearly hard to get mortgage financing.
Since then, thankfully, the conditions for lending have been relaxed a little bit, although the index is still relatively low. The index had a reading of 103.3 in August 2022, which is around one-seventh of what it had been in 2006. It fell by 0.1 percent to 103.3 in December. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit.
Mortgage credit availability was mostly unchanged in December as mortgage rates remained significantly higher than the prior two years and both refinance and purchase activity slowed dramatically The Conventional MCAI decreased 0.1 percent, while the Government MCAI decreased by 0.1 percent.
Of the component indices of the Conventional MCAI, the Jumbo MCAI decreased by 0.2 percent, and the Conforming MCAI was unchanged. The segment of the market which showed the sharpest decline in credit availability was FHA and VA lending –which saw a 23 percent decline over 12 months.
Over the past decade, chronic underbuilding and the influx of millions of millennials into the homebuying market have resulted in a major mismatch in housing supply and demand. Even though mortgage rates are skyrocketing, the housing market is not going to crash any time soon. The result will be a much slower rate of appreciation than in the past two years. We are predicting the housing market for the next 5 years and to recognize patterns that may influence real estate values and rentals beyond a year.
Freddie Mac's own regression research indicates that a 1 percent rise in mortgage rates reduces home price increases by around four percentage points (for example, moving from 11 percent home price growth a year to 7 percent ). In contrast, analysts at J.P. Morgan expect a greater impact of around six percentage points lower home price increase.
Since home values are so high, the housing market may be more susceptible to rate increases than in the past; therefore, the greater estimate appears realistic. While it seems apparent that rising interest rates will reduce housing demand by reducing affordability, the actual past is a significantly less reliable indicator of what will occur because of a huge balancing impact – interest rates often rise when the economy is expanding.
The government-sponsored enterprise forecasts that for every one percentage point increase in mortgage rates, house sales would decrease by around five percent, and price growth will slow by four to six percentage points. If mortgage rates stabilize at current levels, and all other factors remain constant, their analysis predicts a much slower, but still positive house price rise with a wide regional range depending on migration trends.
As work-from-home becomes increasingly popular, it is anticipated that the housing market will continue to be undersupplied and that migration to lower-cost areas will continue to rise. This is significant since most booming cities have a major housing shortage due to a previous inflow of population.
Finally, favorable demographics suggest that the robust demand for first-time homebuyers will persist. This is due to the fact that there are still a substantial number of younger renters with sufficient income to sustain homeownership, and they should continue to be a formidable force for the foreseeable future. As the economy faces various headwinds in 2023, these variables should continue to exert a substantial influence on the housing market.
Freddie Mac's Economic & Housing Research Group in its latest forecast has predicted mortgage rates dropping from an average of 6.8% in the fourth quarter of 2022 to 6.2% in the fourth quarter of 2023. The housing market rapidly decelerated last year as markets absorbed the impact of higher mortgage rates. Home sales have fallen to a forecasted 5.4 million units at a seasonally adjusted annual rate in the third quarter of 2022 from 7 million earlier this year.
Home purchase mortgage applications point to a continued contraction in home sales activity. The government-sponsored enterprise forecasts that home sales activity will bottom at around 5 million units at the end of 2023. Falling from 7 million to 5 million would be a decline of about 30% and put the contraction in home sales in line with other historical periods when interest rates increased.
As housing market activity continues to contract, Freddie Mac expects that it will lead to a continued increase in the months’ supply of homes available for sale from historically low levels last year. The loosening of the once incredibly tight for-sale inventory removes the intense upward pressure on home prices of the past two years. While fewer sales are increasing the months’ supply, that is partially offset by fewer new listings as high mortgage rates disincentivize existing homeowners from moving up or downsizing.
They expect house prices to decline modestly, but the downside risks are elevated. As the labor market cools off, housing demand will remain weak in 2023, potentially resulting in declines in prices next year. However, home price forecast uncertainty is wide due to interest rate volatility and the potential of a recession on the horizon.
Given the house price and home sales forecast, they estimate home purchase mortgage originations to be $1.9 trillion in 2022, slowing to $1.6 trillion in 2023. With mortgage rates expected to remain elevated, they forecast refinance activity to slow with refinance originations declining from $2.8 trillion in 2021 to $747 billion in 2022 and $310 billion in 2023. Overall, their forecast is that total originations will decline from the high of $4.8 trillion in 2021 to $2.6 trillion in 2022 and $1.9 trillion in 2023.
- 34% are confident the housing market will remain strong over the next year. This is down 12 percentage points from last quarter.
- 57% of renters and 25% of homeowners spend more than 30% of their monthly income on housing.
- This is down 3 percentage points and up 1 percentage point, respectively, from last quarter.
- 21% are likely to buy a home in the next six months, a 2-percentage point increase from last quarter.
- 14% of homeowners are likely to sell in the next six months, a 1-percentage point decrease from last quarter.
- 17% of homeowners are likely to refinance in the next six months, a 1-percentage point increase from last quarter.
- 57% of consumers are concerned about making housing payments, with concern increasing among both renters and owners since last quarter.
- 70% of renters (an 8-percentage point increase from last quarter) and 44% of homeowners (a 7-percentage point increase from last quarter) are concerned about making housing payments.
The housing market is far better than it was a decade ago. Last year, the housing industry experienced a boom, with the most significant annual increase in single-family house values and rentals, historically low foreclosure rates, and the highest number of home sales in 15 years, totaling 6.9 million for the entire year. Over the previous two years, national home prices increased by 33%.
The market was driven by record-low borrowing rates in 2020 and 2021, as well as a supply constraint due to underbuilding. The enormous demand from first-time buyers is almost as important as the limited new supply. The current housing market is also being driven by exceptionally favorable age demographic trends.
The overarching concern is whether or not the housing market will crash, and if so, when. The simple answer is that it will not crash anytime soon and we certainly don't see a housing market crash coming in 2023. Rising rates are cooling the market as some expected but the prices are still rising at a slower rate. The current trends and the forecast for the next 12 to 24 months clearly show that most likely the housing market is expected to see a positive home price appreciation.
In recent years, the price of homes has climbed dramatically. Many prospective buyers, especially those with limited financial resources, are eager to hear whether and when home prices will become more accessible. Here is when housing market prices are going to crash. While this may appear to be an oversimplification, this is how markets operate.
When demand is satisfied, prices fall. In many housing markets, there is an extreme demand for properties at the moment, and there simply aren't enough homes to sell to prospective buyers. Home construction has been increasing in recent years, but they are so far behind catching up. Thus, to see significant declines in home prices, we would need to see significant declines in buyer demand.
Demand declines primarily as a result of rising interest rates or a slowing economy in general. Ultimately, for rising interest rates to destroy home values, we'd need substantially less demand and far more housing supply than we presently have. Even if price growth moderates this year, it is extremely improbable that home prices will crash. Thus, there will be no crash in home prices; rather, there will be a pullback, which is normal for any asset class. The home price growth in the United States is forecasted to just “moderate” in 2023.
Affordability will be a concern for many, as home prices will continue to rise, if at a slower pace than the previous year. With 10 years having now passed since the Great Recession, the U.S. has been in the longest period of continued economic expansion on record. The housing market has been along for much of the ride and continues to benefit greatly from the overall health of the economy.
However, hot economies eventually cool and with that, hot housing markets move more toward balance. Housing market forecasts are essentially informed guesses based on existing patterns. While the real estate pace of last year appears to be reverting to seasonality as we enter 2023, demand is not waning.
Increasing interest rates will almost certainly have a greater impact on the national housing market in 2023 than any other factor. While sellers remain in an advantageous position, price stability and the continuation of competitive interest rates may provide some much-needed relief to buyers this year. Housing supply is and will likely remain a challenge for some time as labor and material shortages, as well as general supply chain issues, delay new construction.
The latest housing market trends show that prices are rising in most parts of the country and most price segments because of the lack of supply. Economic activities are ramping up in all sectors, mortgage rates are rising, and jobs are also recovering. The housing market remains largely a moderate seller's market due to demand still outpacing supply. The inventory of available houses continues to be a constraint on both buyers and sellers.
Forecasting home price appreciation is a challenging task. While inventory has increased slightly, it remains significantly below pre-pandemic levels and is simply unable to meet current demand. Tight supply following years of underbuilding, combined with increased demand due to remote work, and US demographics — will continue to be a factor in 2023. It will continue to be a moderate or balanced real estate market in 2023 & 2024.