Sky-high mortgage costs are driving down competition among home shoppers, and a market firmly in favor of buyers is expected before the end of next year, according to a new report from Zillow released this week.
Zillow’s new report describes findings from a poll of a panel of economists and housing experts on their 2023 market forecasts and beyond. The report states that although home price growth has slowed, the market is far from pre-pandemic norms. The majority of the panel, 56%, expects a significant shift in buyers’ favor by sometime next year, while 24% predicted that shift would come in 2024, 13% pointed to 2025, and just 8% expect it after 2025.
Key highlights:
- Although the panel-wide 2022 expected home price appreciation rate ticked up to 9.8% from 9.3%, all 107 survey respondents project home price deceleration in 2023.
- Inexpensive Midwest markets—such as Columbus, Indianapolis and Minneapolis—and fast-growing Southern markets—like Atlanta, Nashville and Charlotte—are the least likely to see home prices decline over the next 12 months, according to survey respondents.
- Markets projected to cool the fastest are those that saw some of the largest growth over the course of the pandemic, including Boise, Austin and Raleigh.
- Suburban and exurban areas are predicted by the panel to retain their heat over the next 12 months, while vacation areas were considered the most likely to see price declines.
- Rent growth should remain strong in the short term over the next 12 months, and rents are expected to grow more than inflation, the stock market and home values.
- The panelists predict an average of 5.4% rent growth throughout 2023—lower than the 8.6% annual growth they expect to see by the end of this year, but still higher than what Zillow data shows to be just under 4% annual growth in the years prior to the pandemic.
Major takeaway:
According to the report, the demand for rentals has already spawned new supply in the pipeline. Builders responded to declining home purchases by ramping up construction on multifamily units, bringing starts to their highest level in years. The panel projects the stock market will rebound over the next three years, outpacing growth in home prices and rents as overall inflation cools.
“U.S. home price appreciation is clearly easing up in response to the historic surge in mortgage rates,” said Terry Loebs, founder of Pulsenomics. “Our expert panel’s mean projections indicate that residential rent price growth is expected to outpace headline CPI inflation over the coming three years and exceed home price growth through at least 2025. Despite softening house prices, this implies that affordability hurdles for prospective first-time homeowners will remain high and persist for years to come.”
Nicole Bachaud, senior economist at Zillow, commented that, “After the frantic rush for real estate over the past two years, buyers are finally seeing a calmer market. Those still able to afford homeownership are quickly regaining lost leverage, but this shift to a more balanced market is still in its early stages. Home shoppers priced out of the market are in a tight spot, though, as high and rising rents could cut further into their ability to save up for a down payment.”
For the full report, click here.
