As we enter 2023 we are seeing the housing market sending clear signals that the historically low mortgage rates and the home-buying frenzy over the past few years has come to an end. So let’s take a look at the real estate expectations for 2023.
After several years of an unambiguous sellers’ market, the 2023 housing market might feel more like a nobody’s market. You can expect to see some buyer advantages in the form of 22.8% more homes for sale, however, the increase will result largely from homes taking longer to sell amid challenging affordability conditions. For-sale homes will remain high-priced, with the national annual median price for 2023 expected to advance another 5.4%—less than half the pace observed in 2022. Still high prices mean that homeowners are likely to walk away from a home sale with significant equity, if they decide to venture into the market and can find a buyer. On the whole, however, we expect home sales to be dramatically lower, down 14.1% compared to 2022 as both buyers and sellers pull back from a housing market and economy in transition. Expect the annual tally for 2023 to be roughly in line with the recent pace of home sales in late 2022.
Sadly for many potential first-time home buyers, 2023 will likely herald a delayed dream rather than a celebration as home costs continue to exceed what’s possible on their budget and income. As fewer households make the jump to homeownership, increased rental demand could help keep rents moving higher. Nationwide, the median rental is projected to increase 6.3% in price, even as an influx of new multifamily housing helps to better meet rental demand. Renters looking to save in the year ahead may consider moving further out to the suburbs.
The housing market will remain tough for many would-be buyers. While mortgage rates might stabilize, prices could decline, and buyers may be able to negotiate with sellers more in 2023 than they were able to over the height of the pandemic, that doesn’t mean that buying a home is suddenly going to become a walk in the park. On the contrary, affordability challenges will likely persist for many, owing to rates remaining steep and supply remaining limited.
Borrowers shouldn’t expect rates to fall to anywhere near their record 2021 lows, or even to as low as they were at the start of 2022. Home prices won’t necessarily fall everywhere, but a combination of relatively high rates and weak home buyer demand will probably push prices down nationwide this year.
One thing we can say for certain about the housing market in 2023 is that no matter the macro-economic conditions, Americans will continue to buy and sell millions of homes. Generally speaking, when talking about the overall health of the housing market, most people are approaching that conversation from the lens of an investor. Will the market bottom out or have we hit the top? That’s an important conversation, but the truth is, people are 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 that week and more about their present situation and whether they can afford a house that fits their needs.
We are optimistic that 2023’s spring selling season will be a bright spot as 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.