The 2023 Housing Market: What to Expect
Interest Rates Are Setting the Scene
Rising interest rates have been the primary factor behind the slowing of the housing market. Buyers who were accustomed to seeing rates in the low 3-percent range had to face rates that reached over 7 percent by October 2022. They are currently back in the mid-6-percent range
Where are Rates Headed?
Many experts believe that interest rates are likely to drop by late 2023, although not to the bare bones levels we've grown accustomed to seeing. The most optimistic forecasts place rates in the high 5-percent range by the end of the year. Other predictions are for rates to stay closer to 7 percent throughout 2023 before dropping into the 6-percent range.
The Federal Reserve expects to continue raising the federal funds rate in 2023, but mortgage rates don't always follow the federal funds trend directly.
Home Prices Are Expected to Soften
Home prices were up 8.6 percent nationwide year-to-year by November 2022, according to CoreLogic, a data and analytics company. They were down 2.5% compared to the spring peak.
(In both March and April of 2022 year-to-year home price appreciation increased by a whopping 20.9 percent.)
Many predictions are for home prices to drop by around 1 to 5 percent by the end of the year. CoreLogic, however, believes that after a decrease in prices during the spring we'll reach 2.8% year-to-year price appreciation by November 2023.
Why Most Experts Don't Expect a Crash
It's understandable for people to be concerned about a repeat of the last recession, but economists are quick to point out that there are big differences in the housing market now compared to in 2007:
- The supply of homes for sale is much lower.
- Stricter lending guidelines have resulted in better-qualified borrowers.
- Far fewer people have adjustable rate mortgages.
- Unemployment is lower.
- Homeowners have far more equity in their homes.
How Low Is the Supply of Homes?
In November of 2022 the national unsold supply of homes was 3.3 months. (This is the amount of time it would take to sell all existing inventory at the current rate of sale if no new listings were added.)
By comparison, going into 2008 the supply of homes was closer to 13 months. While November's 3.3 months was a notable increase from the 1.6 months of supply we had in January of 2022, it's still well below the 6 months of supply that's generally considered a balanced market.
Why Housing Inventory Isn't Higher
We Have Less New Construction
Builders have scaled back on new construction starts due to the rising cost of materials, a shortage of skilled labor, and concerns about how higher interest rates may affect demand.
Current Homeowners Are Staying Put
Many homeowners are locked into historically low interest rates and are unwilling to lose them by selling their home.
Institutional Investors Are Buying
Institutional buying is still a force in some areas where large corporations are scooping up homes in bulk.
Which States Had the Best Price Appreciation?
Florida took the crown from Arizona in 2022, with a year-to-year home price appreciation rate of 18.0 percent in November, according to CoreLogic. South Carolina was next at 13.9 percent, followed by Georgia at 13.6 percent.
The top cities with annual gains in November were Miami (21.3 percent) and Tampa, Florida (17.3 percent), according to CoreLogic.
A Reminder About the Headlines
Housing Sale News Often Reflects a Past Market
News articles talk about real estate statistics as though they're a reflection of the current market, but most home sale data are based on closings that occurred at least a month or two previously. The buyer decisions that determined the closing prices took place even earlier (at the time the offers were made).
"Home Sales Are Down" Does Not Always Mean a Weaker Market
The phrase "Home sales are down" is often stated in a way that implies a softening housing market, but homes sales are a measure of sales volume, not home prices. In a very low inventory market sales can be down while prices are climbing, and vice versa.
No One Knows for Sure What Will Happen
The varying price forecasts for 2023 are a great example of the fact that even top experts can have widely different opinions.
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