2023 Home Sales: The Balancing Act Continues

Anticipating what the real estate market in 2023 will look like could be a little more complicated than in the past few years due to higher interest rates, slower home sales, fewer buyers and economic uncertainty. Economists and other housing experts predict the market will be more balanced among buyers and sellers. Home prices won't change much while mortgage interest rates will continue to dip.

With rumbles of a "crash," the reality is next year will likely be duller, albeit still painful as the market continues to cool before an expected uptick in 2024, according to economic experts across the real estate industry.

Chief Economist at Redfin predicts home sales to sink to their lowest level in more than a decade in 2023 as high mortgage rates keep housing costs up and prevent people from moving. He added that high homeowner equity and a resilient job market will stave off a wave of foreclosures.

Fannie Mae is expecting a “modest recession” in 2023 with a predicted negative 0.5 percent in GDP growth before the economy expands by 2.2 percent in 2024. “The economy caught its breath in the second half of 2022, but that doesn’t change our expectation that it will run out of air in early 2023 via a mild recession,” said Doug Duncan, senior vice president and chief economist at Fannie Mae in a statement to Inman News.

Danielle Hale, chief economist for Realtor.com, anticipates that everyone in the housing market — sellers, buyers, and renters — “may be underwhelmed” next year in what she called a “nobody’s-market” friendly to neither buyers nor sellers.

“The slowdown in home sales transactions that began as mortgage rates surged in 2022 is expected to continue, leading to a moderation in home price growth and tipping housing market balance away from sellers,” Hale said.

According to Inman News, the leading real estate news source for real estate agents, Realtors, brokers, and real estate executives, there are five economic indicators to keep an eye on next year.

Mortgage rates

After starting the year at 3.2 percent, the 30-year fixed mortgage rate rose higher than 7 percent in October for the first time in more than two decades but has begun to decline. Experts differed on how much lower they expect the rate to fall in 2023.

Lawrence Yun, chief economist for the National Association of Realtors, expects the rate to settle at 5.7 percent as the Federal Reserve slows the pace of rate hikes to control inflation, lower than the pre-pandemic historical rate of 8 percent, according to an announcement from the 1.6-million-member trade group.

Some predict rates will stay above 6 percent until the fall of 2023 and then dip into the high 5 percent range, still more than 2 percent lower than the historic average. Other real estate economic experts see the rates hovering around 5.7 to the low 6% range and averaging about 6.1% for 2023.

Home Sales

Most experts agree that home sales will drop in 2023, to which level there are differing opinions. Some predict sales to drop 7% while other economists predict a 14% drop. The reality is, people still need to move, whether it is to downsize, upsize, job relocation, or renters ready to invest in purchasing their first home.

Inventory

The for-sale housing supply is at historically low levels and likely to remain so even as inventory rises slightly in 2023 and new construction is focused on multifamily rentals, experts predict. In Larimer County, inventory is still sitting at an average of fewer than 2 months' supply, well below a balanced market supply of 4-6 months.

Home Prices

After rising by double-digits in 2021 — 16.9 percent, according to Lawrence Yun — home prices nationwide are expected to end 2022 nearly 10 percent higher. Yun predicts a 9.6 percent jump this year while Sturtevant predicts a 9.5 percent jump. Experts’ forecasts on prices in 2023 vary from those thinking prices will remain flat to those expecting single-digit rises or dips.

In a forecast webinar, Lawrence Yun with NAR said, “The probability of a price crash is essentially very small given the lack of supply. Half of the country may experience small price gains, while the other half may see slight price declines,” Yun added. “However, markets in California may be the exception, with San Francisco, for example, likely to register price drops of 10–15 percent.”

Soaring prices were propelled by all-time low mortgage rates, which has since passed and are not likely to surface again for quite some time. Experts all agree there is no housing bubble. Even though home sales will drop, prices will remain level or increase slightly, depending on which part of the country you live in.

Variable Markets

While home prices are not expected to change much overall next year, individual markets may fair differently. Experts generally predicted that relatively affordable Midwestern markets will likely be strongest next year.

Nationally, the median home price increased by an average of 10 percent annually between 2019 and 2022. In Northern Colorado, we saw an average 16% increase in home prices.

There is a lot of "chatter" about where the real estate market is heading. Once we see a pattern in "real-time" sales, we will know if the predictions are on track. As we have learned, other variables can come into play unexpectedly, which will also dictate market trends.

Source: Inman News

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