What to Expect from the Housing Market in 2023
Keeping Matters Current
The
2022 housing market has been defined by two key things: inflation and rapidly
rising mortgage rates. And in many ways, it’s put the market
into a reset position.
As
the Federal
Reserve (the Fed) made moves this year to try to lower inflation,
mortgage rates more than doubled – something that’s never happened before
in a calendar year. This had a cascading impact on buyer activity, the balance
between supply and demand, and ultimately home prices. And as
all those things changed, some buyers and sellers put their plans on hold and
decided to wait until the market felt a bit more predictable.
But what
does that mean for next year? What everyone really wants is more stability in
the market in 2023. For that to happen we’ll need to see the Fed bring
inflation down even more and keep it there. Here’s what housing market experts
say we can expect next year.
What’s Ahead
for Mortgage Rates in 2023?
Moving
forward, experts agree it’s still going to be all about inflation. If inflation
is high, mortgage rates will be as well. But if inflation continues to fall, mortgage rates will likely respond. While there
may be early signs inflation is easing as we round out this year, we’re not out
of the woods just yet. Inflation is still something to watch in 2023.
Right
now, experts are factoring all of this into their mortgage rate forecasts for
next year. And if we average those forecasts together, experts say we can
expect rates to stabilize a bit more in 2023. Whether that’s between 5.5% and
6.5%, it’s hard for experts to say exactly where they’ll land. But based on the
average of their projections, a more predictable rate is likely ahead (see
chart below):
That
means, we’ll start the year out about where we are right now. But we could see
rates tick down if inflation continues to drop. As Greg McBride, Chief
Financial Analyst at Bankrate, explains:
“. . . mortgage rates could
pull back meaningfully next year if inflation pressures ease.”
In the
meantime, expect some volatility as rates will likely fluctuate in the weeks
ahead. If we see inflation come back under control, that would be good news for
the housing market.
What Will
Happen to Home Prices Next Year?
Homes
prices will always be defined by supply and demand. The more buyers and fewer
homes there are on the market, the more home prices will rise. And that’s
exactly what we saw during the pandemic.
But this
year, things changed. We’ve seen home prices moderate and housing supply grow
as buyer demand pulled back due to higher mortgage rates. The level of
moderation has varied by local area – with the biggest changes happening in
overheated markets. But do experts think that will continue?
The
graph below shows the latest home price forecasts for 2023. As the different
colored bars indicate, some experts are saying home prices will appreciate next
year, and others are saying home prices will come down. But again, if we take
the average of all the forecasts (shown in green), we can get a feel for what 2023 may hold.
The
truth is probably somewhere in the middle. That means nationally, we’ll likely
see relatively flat or neutral appreciation in 2023. As Lawrence Yun, Chief
Economist at the National Association of Realtors (NAR), says:
“After a big boom over the past two years, there will essentially
be no change nationally . . . Half of the country may experience small price gains, while the
other half may see slight price declines.”
Bottom Line
The 2023
housing market is going to be defined by mortgage rates, and rates will be
determined by what happens with inflation. The best way to keep a pulse on what
experts are projecting for next year is to lean on a trusted real estate
advisor.
Labels: 2022 Real Estate Market, 2022 Real Estate Statistics, 2023 Real Estate market predictions, Keeping Matters Current, WestportCTRealEstate
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