Amid higher mortgage rates and budgets squeezed by inflation, homebuyers looking for affordability in 2023 will find that prices aren’t coming down, according to the Realtor.com® 2023 Housing Forecast. Instead, with the housing market beginning a gradual adjustment that could last through 2025, what next year will offer buyers is less competition for a growing number of for-sale homes.
Realtor.com® forecasts that buyers and sellers in 2023 can expect:
- Average mortgage rates of 7.4%, with early 2023 hikes followed by a slight retreat to 7.1% by year-end.
- Home sales prices won’t come down, but growth will moderate to a single-digit yearly pace (+5.4%) for the first time since 2020.
- Rents (+6.3% year-over-year) will outpace home prices and likely hit new highs, further adding to budget pressures – especially for first-time buyers.
- An increase in existing homes for sale (+22.8% year-over-year), as the inventory refresh that began last summer accelerates.
- Home sales will decline 14.1% year-over-year to 4.53 million, the lowest level since 2012 (see table below).
Other key 2023 trends:
- A possibility of a second wind in buying activity in the second half of the year: Mortgage rate hikes are projected to continue through March, so the Spring season will likely be less busy than usual as buyers and sellers recalibrate their expectations around smaller budgets. This break could allow for demand to renew as mortgage rates dip later in the year..
- Incomes in 2023 are expected to grow (+3.9%), but not enough to offset higher mortgage rates (7.4%) and home prices (+5.4%), creating a trifecta of budget barriers. The typical monthly mortgage payment will be $2,430, 28% higher than in 2022. This will especially be a concern for first-time buyers: as rents will likely reach new highs, it will leave less room for saving towards a down payment. At the same time, some home shoppers may consider exploring new financial options like adjustable rate mortgages (ARMs)..
- During the mid-2000s housing boom, home sales were elevated for more than five years, and it took another five years for home sales to recover from the economic aftermath. Comparatively, mortgage rate hikes have brought a quicker but less dramatic end to the recent frenzy. Moving forward, home price growth will slow and may even decline periodically as prices largely stabilize over the next two-to-three years. The homeownership rate is predicted to hold in 2023.
- The typical homeowner is projected to gain $25,650 in equity in 2023, as prices keep rising. With real estate wealth already much higher than pre-COVID, these trends offer a positive reality check for sellers. While bidding wars won’t be the norm in 2023, sellers who have owned their home for a longer period of time are still likely to make a profit. And those living in relatively affordable areas may still command offers above asking, driven by continued home shopper interest in relocating to lower-priced markets.
- Forecasted 2023 housing trends don’t anticipate a major shakeup like a recession, but it’s still a possibility. Buyers and sellers should keep an eye out for risk signs like a substantial weakening in the jobs market, beyond the mild uptick in unemployment that is projected. Although a potential recession may lead to lower mortgage rates, ultimately buyers’ purchasing power would suffer. And for sellers, this would likely mean less demand and potential price drops.
“Compared to the wild ride of the past two years, 2023 will be a slower-paced housing market, which means drastic shifts like price declines may not happen as quickly as some have anticipated. It will be a challenging year for both buyers and sellers, but an important one in setting the stage for home sales to return to a sustainable pace over the next two to three years,” said Danielle Hale, Chief Economist for Realtor.com®. “With mortgage rates continuing to climb as the Fed navigates the economy to a soft-ish landing, higher costs will lead to fewer closings, but that doesn’t mean homebuying will stop entirely in 2023. Americans who are determined to make a move will find that staying up-to-date on the market, flexibility, creativity and a healthy dose of patience will go a long way toward success in the year ahead.”
Added Hale, “Of the many factors that are expected to affect the housing market in 2023, affordability tops the list of issues most likely to make or break buyers’ plans. Still, our forecast does offer promise for home shoppers who are well-prepared. Tools like Realtor.com®’s Buying Power can help you understand how various rate changes and options impact your budget, and seamlessly integrate into the home search experience to help you stay on track financially.”
For the full report, click here.