For much of the past two-and-a-half years, it has been a housing market free-for-all, with bidding wars, multiple offers over list price and homes purchased sight unseen. But all of that is changing as the housing market is set to correct in 2023. Note that the forecast is for a housing market “correction,” not a housing market “collapse.” Housing market hyperbole should not mask favorable fundamentals that will support a resistant housing market. National data does not reflect the range of housing market conditions across the country.
Home prices in the U.S. have risen by more than 40% over the past three years. In some local markets, prices have shot up even faster. The run-up in home prices was driven by rock-bottom mortgage rates and pandemic-fueled demand. Now, mortgage rates have risen, and the pandemic is easing, which has led to a significant cooling in the housing market and a slowdown in price growth. As demand has stalled and price expectations are being reset, home prices in most local markets are coming down from their pandemic peaks.
But it is important to note that 2023 is not 2008, when home prices fell by 30% or more in some places due to the perfect storm of loose credit standards, a surge in subprime lending, an oversupply of homes and rising unemployment.
Bright MLS’ forecast suggests that there will only be 4.87 million home sales in 2023, the lowest level of sales activity in nine years. Low supply—rather than a lack of interested buyers—will be the primary driver of subdued transactions. Nationally, home prices are expected to be stable in 2023, with the median home sales price rising by just 0.3% year-over-year.
But the national figures do not tell the whole story. Housing market conditions in 2023 will be very strong in some local markets, particularly those that are more affordable and where the local economy is strong. Midwest metros like Minneapolis, St. Louis and Indianapolis did not see prices rise as fast as some coastal markets, which provides opportunities for home shoppers who are mobile and looking for bargains. Prices could rise 5% or more in these more-affordable markets in 2023.
On the other hand, high-cost markets where housing affordability is a challenge could be poised for price drops of 10% or more. California markets, including Los Angeles and Riverside-San Bernardino, could see the greatest price shocks in 2023.
So, what is a prospective homebuyer to make of all the prognostications? First, know that even as the housing market resets in 2023, it is still going to be a challenging environment for buyers. Home shoppers should be prepared with their financing and offer strategy in place so they can make an offer when they find the right home for them. Second, opportunities for both buyers and sellers will vary tremendously across local markets. Therefore, whether buying or selling, it’s important to work with a professional real estate agent who has a deep knowledge of local housing market conditions. And third, people should not let media headlines tell them whether it is a good time to buy or sell. That big financial decision is 100% personal and needs to be made based on the individual circumstances and needs of each person or family.
Dr. Lisa Sturtevant is the chief economist for Bright MLS. For more information, visit https://www.brightmls.com.
