Real Estate Forecast 2023
A MARKET UNLIKE ANY OTHER WE’VE SEEN
“Experts foresee a drop in home sales, stabilizing mortgage rates, but continuing high payments; year-end rates could be at 5.5 %. The 2023 real estate forecast is partly cloudy and partly sunny.”
Let’s start with the simple thought that anyone, absolutely anyone, who offers up any predictions about where the real estate market is headed in 2023 is just shooting from the hip. We are in totally un-chartered territory and literally anything can happen. There are a ton of factors weighing heavily on the housing market and they are mostly outside of anything the industry has any control over. If inflation persists, the FED will continue to raise rates and further crush buyer purchasing power. New construction may well ground to a halt if there are no buyers for those new homes. And, depending on what happens with the supply chain and material prices, it may become simply unaffordable to build or remodel.
Those aren’t predictions as much as observations.
So instead of forecasting what is likely to happen, here’s my take on what won’t be happening:
MULTIPLE OFFERS Unless inventory shrinks to mid 2020 levels or lower, sellers are likely to negotiate with one buyer or buyers at a time.
PROPERTIES SELLING OVER THE ASKING PRICE The only homes selling over list will be those that were priced too low initially.
BUYERS WAIVING CONTINGENCIES That’s so 2021. Buyers will actually be able to protect themselves with loan, appraisal and inspection contingencies.
SUB 3% MORTGAGE RATES Yes, that really was “free money”. Great while it lasted, but if it seems too good to be true, it usually is.
What all this means is that the buying and selling experience will be somewhat more normal than we’ve seen over the last few years. Buyers will have far more negotiating power. Sellers may have to wait longer before their home goes into escrow and closes.
That’s just my take on things. Here’s what some others are saying:
NATIONAL ASSOCIATION OF REALTORS (NAR)
Lawrence Yun, NAR chief economist and senior vice president of research,predicts 4.78 million existing-home sales in 2023, down 6.8% from 5.13 million in 2022. Annual median home prices are expected to increase by just 0.3%, following a 9.6% gain in 2022.
“Half of the country may experience small price gains, while the other half may see slight price declines.
However, markets in California may be the exception, with San Francisco, for example, likely to register price drops of 10–15%.”
NAR expects rent prices to rise 5% in 2023, following a 7% increase in 2022. He predicts foreclosure rates will remain at historically low levels in 2023, comprising less than 1% of all mortgages.
NAR forecasts U.S. GDP will grow by 1.3%, roughly half the typical historical pace of 2.5%. After surging past 7% in late 2022. Yun states that he expects the 30-year fixed mortgage rate to settle at 5.7% as the Fed slows the pace of rate hikes to control inflation.
ZILLOW
Kudos to Zillow for coming out with some different, even bold, thoughts on the 2023 market. Read the original article here.
The Affordability Crisis Will Stabilize and Possibly Improve
“Affordability has been the biggest challenge for buyers, sellers and renters today. Monthly mortgage costs have doubled since 2019, driven by pandemic-era price hikes, and to an even greater degree, by rapid mortgage rate growth this year. High mortgage rates are not only pushing buyers to the sidelines, they’re tanking new inventory as homeowners decide to hang on to their current houses and low rates. Renters are not exempt from the madness. Rents have grown faster than wages, making it harder to save up for a down payment. The average hourly wage has grown 23% over the past five years, but rents are up 37% during that time after a pandemic-era surge.
Affordability will continue to be the driving force in the housing market in 2023, but there is a decent chance it will improve. At the very least the market should stabilize, making it possible for households to budget and plan for housing decisions coming up in the months and years ahead.”
Home Values to Remain Flat in 2023
“Zillow expects national home values to remain relatively flat next year, and even fall in the most affordability-challenged markets. Mortgage rates, highly impactful to the mortgage payment, are seeing some recent and encouraging progress downwards as inflation and labor market tightness show small signs of easing, enough to lead some to suggest the Federal Reserve may ease its aggressive monetary contraction. If we’ve actually turned the corner on inflation, that should continue. Volatility in mortgage rates could continue through early 2023, however, an ongoing challenge for those who saw their ability to qualify for the same mortgage change on a monthly or even weekly basis this summer.
Rent growth should hew closer to historical norms next year as well. Annual growth has come down quickly from a massive peak of 17.1% in February to 9.6% year-over-year by October. Rents actually fell during the month of October, the first time in two years, a signal of a return to regular seasonal patterns. Meanwhile, builders are working to increase the supply of rental properties at record pace.”
“Elevated multi-family permits point to a strong vote of confidence in continued demand for rental units despite looming recession fears.
This confidence will also encourage more construction of build-for-rent homes, as many would-be homeowners will need to continue renting into later life stages if now unable to move forward with a purchase.”
CALIFORNIA ASSOCIATION OF REALTORS (C.A.R.)
C.A.R. Vice President and Chief Economist Jordan Levine said “High inflationary pressures will keep mortgage rates elevated, which will reduce homebuyers’ purchasing power and depress housing affordability in the upcoming year. With borrowing costs remaining high in the next 12 months, a pull-back in sales and a downward adjustment in home prices are expected in 2023.”
Levine added, “Home prices will also moderate further over the next several months as interest rates remain elevated in the near term and seasonal factors come into play.”
CAR in its 2023 California Housing Market Forecast report, predicts a 7.2% drop existing single-family home sales in 2023. It will fall to reach 333,450 sold unit units, down from their projected sales volume of 359,220 units this year, which is predicted to be 19.2% less than the 444,520 homes sold in 2021.
The median home price outlook is for a decline of 8.8% to $758,600 next year following a projected 5.7% growth this year to $831,460.
“While October’s sales and price results were weaker than what we’ve experienced in the past couple of years and could slow further in the upcoming off-season, the market bottom could be in sight.”
So, if you are not quite sure what to think, understandable.
As I explain to my clients, we’re entering a cycle in Real Estate that neither Buyers or Sellers will particularly like. Buyers will still face affordability issue and high price albeit it with less competition. Sellers aren’t likely to meet or exceed the pandemic era highs and will have to adjust to more concessions and time on market until their homes sell.
But at the end of the day, people need a roof over their head and with rising rents, huge homeowner equity and mortgage payments for existing homeowners favorable, we are not likely to see 2008 redux.