We ask top economists and real estate experts to share their forecasts for the housing market in 2023. Here are their predictions for what they believe will happen.
Published Nov 3, 2022
Amid the on-going instability of the housing market, both buyers and sellers of real estate are eager to know what is expected to happen in the coming months. Many experts are predicting that home prices are set to fall. As interest and mortgage rates continue to rise, and construction affordability still a concern for many, it leaves would-be home buyers searching for a definitive answer to the question: Will house prices go down in 2023?
To find out this and more, we have reached out to experts in the fields of economics and real estate. Weve asked them for their forecasts for what is expected from the housing market in 2023, including; housing affordability, mortgage rates, rent, and construction. Below we reveal their predictions.
It is widely expected that existing home prices will go down in 2023 in what essentially will become a buyers market. Robert Dietz, Senior Vice President and Chief Economist of the National Association of Homebuilders told Fixr.com that they are forecasting home price declines through the end of 2023, with prices down 10% in typical markets from peak. In fact, there is already evidence of house prices decreasing with the National Home Price Index having fallen for two consecutive months, starting in July, for the first time since March 2011.
Taking a deeper look at the percentage drops, Garrett Derderian, Director of Market Intelligence at Serhant, breaks down the expected significant market slowdown by region, saying; The Mountain West and West Coast are the most likely regions to depreciate, anywhere from 10-20% on the high end. However, most East Coast markets are likely to see minimal depreciation of no more than 5%.
For some, the decline in house prices is not only certain to happen, but will also be noticeable. Baron Christopher Hanson, Real Estate Consultant at Coldwell Banker Realty, claims that the insane residential prices that peaked during COVID will now come crashing down to reality again. Average and aging homes worth a few hundred thousand dollars pre-COVID that somehow sold like hotcakes for nearly a million dollars during COVID will be no more.
However, this may not be the case for certain areas of the country. Derderian believes that, In-demand markets, such as Florida, are unlikely to see a major pullback in values, and will likely still show moderate price growth up to 5% from current levels. In the Northeast, we are seeing a return of buyers to more urban areas. As such, New York City is also unlikely to see any major correction due to the limited number of turnkey homes for sale, aiding in price stability.
As well as this, some predict the drop in house prices on a national level wont be extreme. Rayan Rafay, CFO and COO of Fraction says, In 2023, we expect a flat to modest decline in home prices at a national level. This will primarily be driven by a lack of affordability thanks to previous price appreciation coupled with the rapid increase of interest rates.
For homebuilders the situation isnt going to become any more affordable next year. Supply chain issues are set to rumble on and material costs are yet to settle. Derderian says, The cost of building new homes will remain high, due to lingering supply-chain issues that disrupted the market since the pandemic. The average cost to build a new home in 2022 is $358,800.
While lumber prices are nowhere near the dizzying heights reached during and immediately after the pandemic, Rafay agrees that material costs will remain an issue, saying, ...even though material prices for lumber and other metals may decline, overall building costs are unlikely to come down. [...] There has been a marginal drop since the start of the Pandemic, but the cost of construction across the US should continue to increase, albeit moderately.
One of the major factors is that the cost of building a new home still remains high, coupled with high mortgage rates. Declining builder confidence throughout 2022 and supply chain issues preventing costs of materials to come down mean a decrease in demand, bringing about a drop in single-family housing starts.
The slump in new home starts will continue into 2023. Dietz states that, Our forecast finds that single-family starts will decline in 2022 (the first calendar year to post a decline since 2011) and 2023. We are forecasting a housing rebound in 2024. There is a similar story for the multifamily housing market too, with Dietz commenting that We expect the multifamily construction market to slow in 2023.
The housing market plays a big role in the overall economy of a country, as housing prices, mortgage rates, and rent prices all affect the wealth and investments of individuals and their consumer habits. Hanson warns; Make no mistake: Economies and real estate markets will be deeply affected for years, perhaps even decades going forward. When considering what is set to happen over the next couple of years, he says, Factoring in more inflation and worsening interest rates, the majority of populations will simply opt to stay put and lick their own household's fiscal wounds toward economic recovery.
Rafay recognizes that there is no easy fix to the current state of the economy; It will be difficult for the government to curtail inflation without killing the countrys growth. In the upcoming year, I expect inflationary pressures to ebb as the economy contracts in the first part of the year. Economic stagnation will be difficult to quickly exit from, seeing as the government cannot smartly spend its way out of our current stalled growth. They will also be unable to aggressively cut rates, given the inflationary pressures and untethered spending during the Pandemic.
Another major factor tied into this is the issue of labor shortages. Derderian says, Job growth in the industry will be impacted at all levels. The reduced labor force will put pressure on the economy and have a trickle-down effect across industries including construction, real estate, and most notably, the mortgage business, which has already resulted in many layoffs.
In fact, the opposite is happening. Build-to-rent homes have exploded in growth in recent times. Dietz says that, The single-family built-for-rent market is growing, due to homeownership costs being higher. The SFBFR market is more than 10% of home building as of the second quarter 2022. This is a major chunk of the home building sector as a whole, highlighting the growth in demand for this type of housing. There are no signs of slowing, especially while mortgage rates continue to climb.
One noticeable trend we can expect to see in 2023 is people making the decision to stay where they are, as opposed to buying a new home. Mortgage rates have widespread consequences, one of them being people preferring to stick with what theyve got, which also means an increase in renovations.
Hanson believes that, Whilst some people will obviously downsize, sell, rent, or move for their careers if needs be, 2023 and 2024 will be recovery years, humble years, with most people staying put [...]. With more people staying put, remodeling will become a more desired option. Dietz attests to this by stating that, Remodeling will fare best within the residential construction during this housing downturn. Rafay also agrees with this; Many may even choose to stay longer in their existing homes, looking to renovate and upgrade vs. selling and paying more on a new mortgage.
Since the pandemic, we are all acutely aware of how not everything always happens as predicted, and that we should expect the unexpected. However, based on the current economic climate and housing market situation, top experts forecasts are the closest we get to seeing what the future holds. With this in mind, Derderian predicts that, The market forecast for 2023 can best be described as lukewarm. He continues; Still, low inventory will keep prices stable, so a major price correction is unlikely, barring any major geopolitical disruptions or a global downturn. According to Baron Christoper Hanson, one thing is certain: As we approach nearly three years of COVID pandemonium, its diasporas, and its inflation, the world, and especially America, will be permanently economically different.
About the Author
Adam Graham is an industry analyst at Fixr.com. He analyzes and writes about the real estate and home construction industries, covering a range of associated topics. He has been featured in publications such as Better Homes and Gardens and The Boston Globe, and written for various outlets including the National Association of Realtors, and Insurance News Net Magazine.