2023 housing market predictions: Common threads
All the forecasts are in. See what economists agree on — and where their predictions for 2023 diverge.
- One thing everyone seems to agree on? 2023 will be a tough year.
- Mortgage rates remain key to what happens next, and if they drop significantly, that will happen late in 2023.
- Economists are split on what will happen with home prices nationally but agree that local numbers will vary.
After watching real estate go from red-hot to ice-cold in the same year, economists are expecting a market that's on the chilly side throughout 2023.
"It's going to be a tough year for homebuyers, home sellers, and the overall housing market," said Realtor.com Chief Economist Danielle Hale. But "we're going to take some steps toward a better balance between buyers and sellers."
Elevated interest rates and home prices — two causes of the slowdown in the second half of 2022 — don't appear to be dropping significantly anytime soon. Interest rates have steadily declined in recent weeks but are still about double what they were a year ago. Home prices have declined in areas with more inventory, but much of the country is dealing with a shortage of homes for sale and still seeing year-over-year price increases.
It's hard to overstate how much impact the rising interest rates had on the real estate market. The jump from 3% to more than 6% disqualified 20 million households from a $400,000 mortgage and reduced the borrowing pool by 40%, according to the Burns U.S. Housing Analysis & Forecast.
Heading into 2023, the market may remain inhospitable, as many buyers can't afford to buy, and sellers have little incentive to sell (unless they have to). Most economic forecasts agree that reversing those trends will take some time while the Federal Reserve continues to try and tame inflation.
Here's a closer look at a few key predictions.
Home sales: Continuing a downward trend
Forecasts analyzed for this article all agreed that fewer homes will be sold in 2023. Existing home sales fell to an annualized rate of 4.09 million in November; a year ago, the rate was 6.46 million, and while the market was especially hot in 2021, even pre-pandemic sales were significantly higher, coming in at 5.35 million in November 2019.
For 2023, NAR is expecting a relatively modest decline in sales of 6.8%, while other industry economists anticipate double-digit declines. Zillow predicts a drop of 17%, Redfin is close behind at 16%, and Realtor.com puts the number at 14.1%.
"Why would owners sell and lose the historically low mortgage rate that they have?" asked Windermere Chief Economist Matthew Gardner during his 2023 predictions presentation.
Interest rates: May come down, but not much
Forecasters generally believe the Federal Reserve will start easing its aggressive monetary policy by spring or summer, but the Fed could continue to hike interest rates if inflation remains an issue.
Several economists expect rates to settle in the 6% range by the end of 2023, with the most optimistic forecasts betting on 5% — still well above the 3-4% rates many homeowners were able to secure in recent years.
Realtor.com was less optimistic, predicting that rates will hit 7.4% before ticking down at the end of the year. The Fed has committed to raising interest rates further, which has typically led to higher mortgage rates as well.
"Even though we have seen some progress on inflation, it's three-and-a-half to four times higher than the Fed would like it to be," says Hale. "That means there's more work for the Fed to do."
Prices: Nothing to write home about
Economists are split on where prices will go. Some forecasters see peak-to-trough prices dropping 20%, while Redfin, CoreLogic and Reator.com expect a gain of between 4-5.4% over the course of the year. Quite a few other forecasters are expecting a flat year.
And regardless of what happens nationally, local numbers may be all over the map.
"Some of the places that I think are at greatest risk of price declines are some of these so-called Zoom communities… [that brought] people with higher incomes to the housing market," said Bright MLS Chief Economist Lisa Sturtevant during a panel discussion at NAR's Real Estate Forecast Summit earlier this month.
The gloomiest outlooks — those expecting big price drops — are tied to demand, according to a recent article in Fortune, which suggests that demand is now so weak that those who must sell, like builders and iBuyers, will need to significantly slash prices in 2023.
Write to Dave Gallagher.