The Real Estate Market is Back to Normal

2023 Real Estate Forecast: Experts Predict a Return to Normalcy

Housing economists predict that 2023 will see a return to normalcy in the housing market, with stabilizing mortgage rates and home sales and prices moderating after recent highs. However, some housing markets may see an uptick in homebuying activity at the beginning of the year, and the ongoing housing supply challenges are expected to prevent home prices from falling. Housing inventory is expected to remain tight in 2023, with housing starts below historical averages and fewer homeowners willing to sell. Yun predicts home sales to fall by 6.8% in 2023 compared to 2022, with the brunt of the slowdown to occur in the first quarter of the new year. Meanwhile, home prices in 2023 are forecast to reach $385,800, an increase of 0.3% compared to 2022. However, half of the country may experience small price gains, while the other half may see slight price declines. Some of the softening can be attributed to homeowners who are unwilling to trade in a higher mortgage rate, as well as economic uncertainty. The ongoing housing supply challenges will prevent home prices from falling, though price appreciation will slow.

After a tumultuous year of soaring inflation and rapidly rising mortgage rates, economists are predicting that 2023 will see a return to a more normal housing market. The National Association of REALTORS® (NAR) held its annual Real Estate Forecast Summit, during which experts shared their predictions for the coming year. While mortgage rates and home prices are expected to stabilize, persistent inventory shortages may continue to impact home sales.

The Real Estate Market is Back to Normal
The Real Estate Market is Back to Normal

Stabilizing Mortgage Rates and Moderating Home Prices

NAR predicts that mortgage rates will stabilize in 2023, with home sales and prices moderating after recent highs. However, the details may vary from region to region. Some housing markets may experience an uptick in homebuying activity, especially if mortgage rates continue to decline from their recent high of 7%. However, housing inventory is expected to remain tight in 2023, with housing starts below historical averages and fewer homeowners willing to sell, according to NAR Chief Economist Lawrence Yun.

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Challenges with Housing Supply and Sales

The ongoing housing supply challenges are expected to prevent home prices from falling, though price appreciation is predicted to slow. Yun predicts that home sales will fall by 6.8% in 2023 compared to 2022, with the brunt of the slowdown occurring in the first quarter of the year. Some of the softening can be attributed to homeowners who are unwilling to trade in a higher mortgage rate, as well as economic uncertainty.

Despite the challenges, Yun sees hopeful signs for early next year. He expects home prices to reach $385,800, an increase of 0.3% compared to 2022. However, Yun notes that after a big boom over the past two years, there will essentially be no change nationally in home prices in 2023. Half of the country may experience small price gains, while the other half may see slight price declines.

The exception may be markets in California, such as San Francisco, which could register double-digit price drops of 10% to 15% next year, according to Yun.

Impact of Mortgage Rates on Home Sales

“Mortgage rates are the lifeblood that drive home sales,” Yun said. For the last four weeks, rates have been dropping after reaching 7.08% in November. Yun believes that mortgage rates may have already peaked, pointing to an “abnormally high spread” between 30-year fixed-rate mortgages and the Treasury, which historically are more closely tied together. Yun expects mortgage rates to settle at 5.7% by the end of next year.

Despite the recent declines, mortgage rates are more than double what they were a year ago, ramping up rapidly this fall and walloping housing affordability. But if inflation continues to slow and rates stabilize, that could bring more buyers back to the market and boost demand for housing, Yun said.

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Realtor.com® Chief Economist Danielle Hale predicts that mortgage rates will average 7.1% by the end of 2023, considerably higher than NAR’s prediction of 5.7%. Hale also expects home shoppers to continue to grapple with housing affordability in the new year.

Challenges in New Home Construction

Danushka Nanayakkara-Skillington, assistant vice president of forecasting and analysis at the National Association of Home Builders, expects housing starts to drop by double digits in 2023. Labor shortages, lot shortages, higher material costs, and lending issues for builders are all compounding factors preventing more construction. While lumber prices have eased from record highs, construction costs remain 14% higher due to shortages in other supplies, like gypsum and steel.

Builder confidence has fallen over the last 11 months as mortgage rates rose and buyer traffic slowed dramatically.

  • The National Association of REALTORS® (NAR) predicts a return to a more normal housing market in 2023, with stabilizing mortgage rates and moderating home prices.
  • Persistent inventory shortages may continue to impact home sales, with housing starts below historical averages and fewer homeowners willing to sell.
  • While mortgage rates and home prices are expected to stabilize, the details may vary from region to region.
  • NAR Chief Economist Lawrence Yun predicts that home sales will fall by 6.8% in 2023 compared to 2022, with the brunt of the slowdown occurring in the first quarter of the year.
  • Yun sees hopeful signs for early next year, with home prices expected to reach $385,800, an increase of 0.3% compared to 2022. However, he notes that after a big boom over the past two years, there will essentially be no change nationally in home prices in 2023.
  • Markets in California, such as San Francisco, could register double-digit price drops of 10% to 15% next year, according to Yun.
  • Mortgage rates are expected to settle at 5.7% by the end of next year, according to Yun. However, Realtor.com® Chief Economist Danielle Hale predicts that mortgage rates will average 7.1% by the end of 2023, considerably higher than NAR’s prediction of 5.7%.
  • Housing starts are expected to drop by double digits in 2023 due to labor shortages, lot shortages, higher material costs, and lending issues for builders, according to Danushka Nanayakkara-Skillington, assistant vice president of forecasting and analysis at the National Association of Home Builders.
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Dan Skelly
Orson Hill Realty
Evergreen Colorado
Platinum Real Estate
Marco Island/Naples FL

2023 Real Estate Market Predictions – Our Crystal Balls Are Balling!

Dan Skelly Real Estate

Dan Skelly is a real estate broker/owner/agent at Orson Hill Realty in Evergreen CO. Dan is also a Realtor in Southwest Florida on Marco Island and Naples Florida