For the past three years, the housing market has experienced dramatic shifts. Nonetheless, the question remains: what will the housing market look like throughout 2023? Experts anticipate the answer is contingent on the trajectory of the overall economy. If inflation continues to decline and the Federal Reserve is able to slow down economic growth without too much damage, a recession may be avoided. Even if the outlook is not entirely positive, we may still approach a more balanced housing market than we have experienced in recent years.
In 2023, the housing market will be impacted by the usual supply, demand, and affordability factors. Predictions for the year are based on the assumption of a shallow recession. If the country avoids a recession or experiences a longer downturn, these trends may change.
Current Home Prices Will Drop
It is anticipated that home values nationwide will decrease by around 5% in 2023, and in places with higher-than-average real estate prices and in areas where housing prices have risen dramatically, the decrease could be up to 10% or more. If a recession were to set in, it is possible that the decrease in home values across the nation could be more than 10%, particularly in regions where home prices are not in line with local incomes.
Home Sales Will Slow
Low affordability and record-low mortgage rates will decrease transaction activity; however, homeowners without a mortgage may be more inclined to sell. Furthermore, many owners are likely to opt to keep their homes as investments and rent them out instead of accepting a lower sales price.
Builders Will Reduce Production of New Single-Family Homes
Homebuilders drastically increased production to meet demand during the pandemic but are now cutting back on building new homes for sale. In 2023, the majority of newly-built homes will be sold to buyers who had already signed contracts in 2022, converted into rentals, or sold to investors to rent out. Some builders with lower land costs are reducing home sizes and input costs in order to make more new homes available to first-time buyers.
Rents Will Stabilize, Before Increasing
Rent increases have been slowing in recent months and are expected to increase moderately in 2023. However, the large number of multifamily units being built and the influx of short-term rental landlords could lead to a decrease in rent in some markets. Additionally, homeowners may choose to become landlords instead of selling their homes.
Housing Production Will Decrease
Developers and builders are likely to reduce their production of new homes for sale and rent, with a larger decrease in single-family homes. However, production is expected to remain high in more affordable markets with a large amount of unmet demand.
Building Permits Will Decline
Residential building permits are expected to decrease further than housing starts due to the high level of uncertainty in the market. Homebuilders will prepare for the rebound by discounting unsold homes, getting rid of unwanted land, and consolidating with other companies.
30-Year Fixed Mortgage Rates Are Unlikely To Fall
Mortgage rates are expected to remain high in 2023 due to economic uncertainty and inflation, investors demanding higher rates due to likely refinancing in the future, and the Federal Reserve’s goal to reduce inflation to the 2.0% target rate. The success of the latter is uncertain.