Interestingly, due to low inventory, “home prices won’t drop in 2023,” Evangelou predicts. “I expect pricing to be relatively flat, increasing by only 1 percentage point.”
Johnson, though, feels that higher interest rates will undoubtedly hurt home values and pricing. “A soft real estate market with prices at levels lower than current levels will result,” Johnson says.
That’s not great news for sellers, but welcome news for house hunters.
“There are plenty of potential buyers still patiently waiting to enter the market. Assuming home prices ease, you’ll start to see some of these buyers emerge, especially the all-cash or lower loan-to-value purchasers who are less impacted by any interest rate concerns,” explains Scott Krinsky, a partner in the Residential Banking Department of Romer Debbas, a Manhattan real estate law firm.
Home values on a national level are almost certain to decline at least modestly, perhaps between 5 percent and 10 percent, according to Sharga.
“Some of the more expensive markets will potentially see larger declines. Limited inventory, strong credit quality among current mortgage holders, and demand from young adults looking to become homeowners should help prevent prices from falling even further,” continues Sharga.
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Will 2023 be a buyer’s market or a seller’s market?
For two years, it’s been a seller’s market. Will 2023 favor buyers or sellers more in most markets? Greg McBride, the chief financial analyst for Bankrate, says “affordability issues and economic worries will depress home buyer demand, and inventory of homes available for sale will remain limited. So it’ll continue to be more of a balanced market than tilting one way or the other.”
Krinsky expects leverage to vary nationally, depending on the type of market.
“With the pandemic, we saw a new spike of bidding wars in suburban and smaller markets, likely because of the desire for more space and the increased flexibility of remote working across the country,” says Krinsky. “Now that many offices and businesses are back near full capacity and fully operational, the hope is that larger markets can revert back toward pre-pandemic levels and we will see increased demand there.”
Johnson, on the other hand, anticipates sellers holding fewer cards. “It will be a buyer’s market next year, as many reluctant sellers – those waiting for the market to turn around – will likely capitulate, adding to more housing supply,” he says.
Will housing inventory increase?
A shortage of homes has helped fuel the frenzied market of the last few years. But experts differ on housing inventory projections for 2023.
“Before the housing crash of 2008, inventory peaked at about a 13-month supply – twice what we would see in a healthy market,” Sharga says. “Today, we have about a three-month supply, which is about half of what we need. Current homeowners are unlikely to trade in their 3 percent mortgage for a new home with a 7 percent loan unless they absolutely have to, so existing home inventory should remain low. And builders have scaled back on housing starts for the past three months. That means we are not likely to see a huge boost in supply from new construction anytime soon, either.”
But others foresee increased supply next year. “Housing inventory will rise throughout 2023 as homes become more unaffordable due to high rates,” Shirshikov thinks.
Will homes be more affordable?
Will homes continue to remain financially out of reach for many purchasers next year, or will matters be better for buyers?
“If inflation pressures ease and we see a meaningful pullback in mortgage rates next year, this will ease some of the strain on buyers – but only a bit,” explains McBride. “Prices will remain fairly steady, and in a lot of markets that’s a price that is 40 percent or higher than pre-pandemic.”
“Home prices will not fall proportionally,” Shirshikov thinks. Any “fall in prices will not be enough to offset the rising interest rate and its contribution to the monthly [mortgage] payment.” As a result, homes may even seem less affordable, he says.
The impact of higher mortgage rates and lower home prices in 2023 will likely cancel each other out to a great extent, Johnson agrees. His take: “Overall home affordability won’t change dramatically.”
The bottom line on the 2023 housing market
Taking a big-picture look at the possible real estate market next year, most pros are in consensus: something of a transitional year, characterized by uncertainty.
“The housing market will be tepid in 2023, with only lukewarm demand and a limited amount of inventory available for sale,” McBride predicts. However, “mortgage rates could pull back meaningfully next year if inflation pressures ease.”
“The hope is that, as supply and demand within the housing market normalize, interest rates can start to come back down to earth,” Krinsky agrees. “Until this happens, those who simply cannot afford the costs of borrowed money will have to continue to wait. For those waiting on the sidelines holding out hope that rates may soon drop, they might have to accept the fact that the lower-rate financing windows open in 2020 and 2021 have closed.”
But if mortgage rates don’t move much, “that means borrowers will pursue fewer purchase loans and we will see a continuing decline in rate-based refinance activity,” Sharga reiterates. “With more homeowners staying in place, we also might see an uptick in home equity loans and home equity lines of credit over the course of the year.” In other words, if moving will be out, remodeling may well be in.
Source: https://www.bankrate.com/real-estate/housing-market-predictions-2023/#sales
