Disclaimer! These are just predictions! No one really knows.
Inflation soared to a 40-year high and rapidly rising mortgage rates put the brakes on what had been a pandemic-era home buying frenzy. Interest rates roughly doubled in 2022, and mortgage rates did the same. The feds kept raising the interest rates and right along side that, mortgage rates also increased.
Home sales ended 2022 16% down from the same time period in 2021, marking their lowest level since 2014. Annual new-home sales down 17% for 2022, returning to pre-pandemic levels.
So how About 2023?
Will the cost of financing a home be coming down? Will Home prices fall further? Have we hit the bottom of the housing market? Or are we in for a big crash?
Today we are going to review some of what some of the experts are saying and also what we are seeing:
The pessimistic will say...
We will see continued inflation, overall higher interest rates, a potential recession, and geopolitical tensions which will force 30-year and 15-year mortgage rates up throughout 2023 and will bring these two rates closer together, with a 30-year and 15-year benchmark mortgage loans averaging 8.75 percent and 8.25 percent.
The optimistic will say...
One thing for certain about the housing market is that no matter the economic conditions, Americans will continue to buy and sell millions of homes.
But the question remains ..Will the market bottom out or have we hit the top?
The truth is, people are still getting married, divorced, moving to care for aging family members, relocating for career opportunities and so on, every single day.
And for those people, it’s less about the interest rate or mortgage rates and more about their present situation and whether they can afford a house that fits their needs.
When people talk to us about the market like this, it's usually based in fear. People fear losing money. We always tell them that the market is always going to fluctuate. The Real Estate market is never going to stop...there is always a good reason to get into it.
We are optimistic that 2023’s spring selling season will be a bright spot as we usually do and levels of inflation get more under control.
There will still be extreme demand as new construction just can’t get out of the ground fast enough, and the Millennial home buyers, who make up a huge demographic, are primed to make their move.
According to a recent survey conducted by RE/MAX in partnership with SWNS Media Group, 84% of Gen Z, 79% of Millennials and 61% of survey respondents 77 or older plan to buy a house or condo in the next few years.
In our opinion, 2023 will be a better year for housing than many people think, especially because we'll no longer have year-over-year comparisons to 2021 – We get to compare 2023 against 2022 – that should be a little easier.
Borrowers shouldn’t expect rates to fall to anywhere near their record 2021 lows though. Home prices won’t necessarily fall back to 2015, but with a combination of relatively high rates and weak home buyer demand, we will probably see prices down this year.
Perhaps around a 5% to 10% drop, which may seem steep, but it’s important to keep in mind that because home values rose so much over the height of the pandemic, declines this year are unlikely to totally wipe out the gains that many homeowners saw over the past few years.
You may be looking at 2019 prices but there was still a lot of gain in that time since most people have owned their homes for at least 2 years.
The National Association of Realtors predict that we will see a slow but steady year long return to “normalcy” with mortgage rates expected to stabilize while home sales and prices moderate
But we know from experience that these details will be different from region to region.
Some housing markets may see an uptick in home buying activity at the beginning of the year, especially if mortgage rates continue receding from a recent high of 7%.
Housing inventory is expected to remain tight in 2023, with new housing starts below historical averages and fewer homeowners willing to sell
Ongoing housing supply challenges will prevent home prices from falling, though price appreciation will slow
The brunt of the slowdown will occur in the first quarter of the new year. Some of the softening can be attributed to homeowners who are unwilling to trade in a higher mortgage rate, as well as economic uncertainty.
Here is what some of the Expert Real Estate Economists are saying for 2023:
“After the big boom over the past two years, there will essentially be no change nationally in home prices in 2023,” Lawrence Yun Chief Economist for NAR said. “Half of the country may experience small price gains, while the other half may see slight price declines.” He pointed out that certain markets which experience the most gains in the recent years, may see the largest price drops.. of 10% to 15% next year.
“Mortgage rates are the lifeblood that drive home sales,” Yun said. For the last four weeks, rates have been dropping after reaching 7.08% in November. On Tuesday, the Consumer Price Index offered hope that inflation is further cooling, prompting the Federal Reserve to start slowing the hikes to its benchmark interest rate.
Yun said he 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. “As the mortgage market normalizes, it will be an opportunity for rates to decline even further,” Yun said, adding that he expects mortgage rates to settle at 5.7% by the end of next year.
Still, mortgage rates are more than double what they were a year ago, ramping up rapidly this fall. But if inflation continues to slow and rates stabilize, that could bring more buyers back to the market and boost demand for housing.
Realtor.com®, which is owned by the NAR is Bullish on Home Prices
Realtor.com® Chief Economist Danielle Hale was upbeat about the prospects of property appreciation, projecting a 5.4% increase in existing-home prices for 2023. “We think price growth will be half of what it was in 2022, and we may see some months of year-over-year declines,” Hale said. “But overall, we believe prices will be higher. [Housing] shortage conditions are still going to be present in the market.”
She said she expects home shoppers to continue to grapple with housing affordability in the new year. Realtor.com® predicts mortgage rates to average 7.1% by the end of 2023—considerably higher than NAR’s prediction of 5.7%. Home buyers still will face sticker shock, Hale said, “but they will have more time to make a decision and more options.”
Danushka Nanayakkara-Skillington, assistant vice president of forecasting and analysis at the National Association of Home Builders, said she expects housing starts to drop by double digits in 2023. Then, “as the economy improves in 2024, the housing market will gradually come out of this slump that is expected from the next year,” she added.
Builder confidence has fallen over the last 11 months as mortgage rates rose and buyer traffic slowed dramatically. Fifty-nine percent of builders have reported using incentives, like mortgage rate buydowns and price cuts, to try to win buyers back.
Labor shortages combined with lot shortages, higher material costs and lending issues for builders are all compounding factors preventing more construction. And while lumber prices have eased from record highs, construction costs remain 14% higher due to shortages in other supplies, like gypsum and steel. “All of these issues will keep homebuilding down,” Skillington said. “We don’t see these issues being resolved in the near future either.”
Bright MLS says :
“We believe 2023 will bring lots of variability in how housing markets adjust,” Bright MLS Chief Economist Lisa Sturtevant said. “There will be a lot of resetting expectations for both buyers and sellers.”
Sturtevant predicted the greatest risk for price declines likely to occur in pandemic-era boomtowns—communities that saw some of the largest increases over the last two years, will most likely see prices fall significantly. “Regardless, in almost every market, we believe prices will still remain above 2019 levels. So even if prices do come down, we should still be ahead of where we were prior to the pandemic.”
Sturtevant added that many consumers could take a wait-and-see approach as they digest higher mortgage rates and come to terms with the changing market.
Rick Sharga, executive vice president of Market Intelligence for ATTOM Data Solutions, which analyzes real estate and property data, is more hopeful. He says that rates will peak at about 8 percent and 7.25 percent for 30-year and 15-year loans in early 2023, “then gradually come down over the course of the year somewhat to hang in the range of 6.0 percent and 5.25 percent, respectively. This is entirely dependent on the Federal Reserve’s ability to get inflation under control and ease up on it’s aggressive rate increases”
Nadia Evangelou, senior economist and director of Real Estate Research for the National Association of Realtors, envisions three different rate scenarios “In scenario #1, inflation continues to remain high, forcing the Fed to raise interest rates repeatedly. That means mortgage rates will keep climbing, possibly near 8.5 percent. In scenario #2, the consumer price index responds more to the Fed’s rate hikes, and there is a gradual deceleration of inflation, causing mortgage rates to stabilize near 7 percent to 7.5 percent for 2023. In scenario #3, the Fed raises rates repeatedly to curb inflation and the economy falls into a recession. This could cause rates to likely drop to 5 percent,” In each of these cases, sales will be down — it’s just a question of how much.
In Central Oregon we have seen listings lingering on the market with Days on Market climbing back to pre pandemic levels. But most likely due to low inventory home prices will not drop that much in 2023. We expect them to remain relatively flat.
For two years, it’s been a strong Sellers Market… Will 2023 favor buyers or sellers?
Affordability issues and economic worries will depress home buyer demand, so it’ll continue to be more of a balanced market. Not favoring Buyer or Seller. For those waiting on the sidelines holding out for mortgage rates to drop soon, they might have to accept the fact that lower-rate financing window in 2020 and 2021 is gone. More homeowners are staying in place. This will increase Home Equity Loans and remodeling as a result.