Housing Market Predictions for 2023: Will Home Prices (Finally) Fall? (2023)

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Rising mortgage rates have put much-needed pressure on the booming housing market in recent months after home prices hit record highs across the country. But with mortgage rates beginning to fall in recent weeks, many economists are confused about whether home prices will continue their slow decline through 2023 or fall.

The country's overall housing supply remains limited, as those who bought houses in recent years with extremely low mortgage rates remain stuck. This tight inventory has prevented prices from falling further, leaving homes still unaffordable for many, especially first-time homebuyers.

While house prices remain high year after year, they are not as attractive as they were earlier this year. How home prices fall in 2023 will likely depend on where mortgage rates go.

Forecast of the real estate market until 2023

Many housing experts caution buyers against trying to time the market as the economy goes through its current period of uncertainty.

“Deciding to buy now or wait will depend on the motivation and situation of the individual buyer. Waiting may not be a viable option,” says Krista Forsberg, a real estate agent with Keller Williams Realty in Edina, Minnesota. "Even if a buyer can delay the purchase until the end of the year or 2023, it is not likely that there will be a significant improvement in prices or interest rates."

As we approach the end of 2022, housing experts are keeping a close eye on the economy, which continues to be pulled in all directions by stubbornly high inflation, high interest rates, ongoing geopolitical uncertainties, and themidterm election results, to name a few.

After a few bullish years for the housing market, there are signs that a correction is underway, but it is coming slowly. Mortgage rates are still more than double what they were in the first week of 2022 and home prices are more than 6% higher than a year ago, making it difficult for prospective buyers to access affordable housing.

The median sales price for an existing home was $379,100 in October, up 6.6% from a year earlier but down from the record $413,800 in June, according to the National Association of Realtors (NAR). Still, higher housing costs hurt homebuyers as mortgage applications are at their lowest level in 25 years, according to the Mortgage Bankers Association (MBA).

Total existing home sales fell 5.9% from September to October, marking the ninth straight month of declines in sales, as homebuyers were "prevented from qualifying for a mortgage," said Lawrence Yun, an economist. head of NAR, in the report.

But that could change soon.

"Mortgage rates have fallen from their peak in mid-November, so home sales may be close to bottoming out in the current housing cycle," Yun said.

Housing Inventory Forecasts for 2023

Low housing inventory has been a challenge since the 2008 housing crisis, when new home construction plummeted. He never fully recovered.

Home supply that remains near record lows has supported demand compared to other recessions, keeping home prices higher.

“Inventory levels are still tight, so some homes for sale are still getting multiple offers,” Yun said.

At the current sales pace, stocks are in a 3.3-month supply, according to NAR.

“[That] is about half of what we would normally like to see,” says Rick Sharga, executive vice president of market intelligence at ATTOM Data. “And we still have pent-up lawsuits based on demographic trends.”

Home inventory rose slightly from 3.1 months in September and 2.4 months a year ago, according to NAR.

Meanwhile, the ongoing slowdown in new construction is squeezing the already limited supply of homes. Single-family home starts and October building permit applications fell 6.1% and 2.4%, respectively, from the previous month, according to the U.S. Census Bureau and the Department of Housing and US Urban Development

When will the real estate market crash?

There are conflicting signals from economists as to if and when the housing market will crash, or if it will simply "correct" the double-digit percentage jumps seen in house prices over the past year.

“We are estimating a drop of around 5% nationally,” says Sharga. "Some markets, believe it or not, are likely to see prices continue to rise."

Other experts point out that today's homeowners are in a much safer position than those who emerged from the 2008 financial crisis, so the likelihood of a housing market crash is low.

"Owners' equity is at its highest point in decades, so homeowners have a lot of value in their home," says Nicole Bachaud, economist at Zillow.

Bachaud also points out that mortgage products have become less risky.

“There are many more regulations and restrictions in the mortgage market that make it much stronger, less volatile and less risky than it was in the market after 2008,” he says.

In a housing market crash, you would typically see a 20% to 30% drop in home prices and a decline in home sales, far more than is currently happening. Another missing accident symptom is a jump inforeclosure activity.

“I think it is more likely that we will see the market cool off rather than fall,” Sharga says.

Are there a lot of foreclosures coming?

While there has not been a significant increase in foreclosures to date, foreclosure initiations have increased on a quarterly basis since the federal government ended the Covid-19 foreclosure moratorium in September 2021. Foreclosures increased about 1% in the third quarter from last quarter and 167% year-over-year, reaching pre-pandemic range, according to ATTOM Data Solutions.

“We are still operating at about half normal levels of foreclosure activity,” Sharga says. He doesn't expect us to return to "normal" levels until mid-2023, depending on whether there is a recession.

A key difference now compared to the last housing crisis is that many homeowners, and even those struggling to make payments, have seen their home values ​​rise dramatically in recent years. This means that you still have equity in your home and it is not under water, when you owe more than the home is worth.

"(E) Even when the foreclosure moratorium was lifted...we didn't see a huge rush of foreclosures because people have a lot of capital," Bachaud says.

Should I buy a house now or wait until 2023?

buying a house— in any market — is a very personal decision. Since homes represent the single largest purchase most people will ever make, it is crucial to be in a strong financial position before taking the plunge.

use amortgage calculatorto estimate your monthly housing costs based on your down payment and interest rate.

Trying to predict what might happen next year is not the best home buying strategy. "Buyers who sit on the sidelines today, anticipating lower prices tomorrow, could end up disappointed," says Neda Navab, president of Compass.

Navab expects home prices in some high-end markets and other areas that have seen substantial price increases in recent years may come down a bit, but he doesn't expect a nationwide price slump like the financial crisis. of 2008.

So instead of waiting for much lower prices, buy a house based on your budget and needs. If you find a home you love in an area you love and also fits your budget, it's probably right for you. However, if you make too many sacrifices just to get a house, you could end up with buyer's remorse and an expensive albatross that you may have to unload.

Tips for Buying in a Booming Real Estate Market

Start with a budget and stick to it. Even with a slight increase in the number of homes for sale, buyers still face high prices and mortgage rates approaching 7%.

“The biggest problem right now is the disconnect between buyers and sellers,” says Rita

Tayenaka, owner of the Coast to Canyon brokerage based in Orange County, California. "Buyers want a low ball and sellers want last year's price."

While buyers are gaining a bit more breathing room now, they should keep in mind that it is still a seller's market as they consider their options.

Tips for selling in a hot real estate market

The first step to a successful sale is finding a real estate agent who knows the area and comes highly recommended. A good agent will work closely with you to competitively price your home, answering questions and offers from potential buyers.

Tayenaka points to the large number of homes coming off escrow recently as a wake-up call for sellers who continue to demand 2021 prices. "Everybody thinks their house is special," she says.

Even if the market is still in your favor, it is in your best interest to present your home in the best possible light. Not everyone has money dedicated to renovations and repairs, but a little capital can go a long way. The first step is to order, organize and clean. Even if your home is outdated, a clean space gives buyers the opportunity to envision the home's potential.

Frequently Asked Questions (FAQs)

Will rising interest rates lower home prices?

Historically, rising mortgage rates have not always led to lower home prices. Rising interest rates tend to cause home values ​​to decline. However, since interest rates have risen so fast this year, they could force home prices down. Home price trends also depend on supply keeping pace with demand.

What will happen if the housing market crashes?

Most experts do not expect a recession in the housing market, as many homeowners have accumulated significant equity in their homes. The problem is mainly an accessibility crisis. High interest rates and inflated home values ​​have made home buying a challenge for first-time buyers.

Is it smart to buy real estate before a recession?

If you are in a financial position to buy a home that you plan to live in long term, it doesn't matter when you buy it, because you will live in it through economic ups and downs. However, if you are looking to buy real estate as a short-term investment, there will be more risk if you buy at the peak before a recession.

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