It's difficult to tell how the current social and economic indicators will affect the housing market in 2023. However, supply, demand, and affordability will continue to play a role. Here are some predictions for the 2023 housing market, assuming a shallow recession Should the economy take a different path, these predictions may change accordingly.
Slowing of Existing Home Sales
Low affordability and record-low mortgage rates are making it difficult for homeowners to sell their properties. This has led to an increase in owners keeping their homes as investments and renting them out instead of accepting a lower sales price
Falling Existing Home Prices
Home prices in 2023 are expected to decrease by 5% nationally They could even drop up to 10% or more in markets with high home values and those that have seen the biggest increases. If a deeper recession hits, prices could drop 10% or more in areas with prices not in line with local incomes
Builders Cutting Back on New Homes
Homebuilders drastically increased production in response to the pandemic but have now cut back on building new homes for sale. In the upcoming years, most of the new homes will be sold to buyers with contracts from 2022, converted into rentals, or sold to investors Some builders are downsizing their homes and reducing input costs in order to make more new homes available to first-time buyers.
Falling and Rising Home Rents
Rent increases have been slowing in recent months and are projected to rise only slightly in 2023 However, the large number of multifamily units under construction could lead to a decrease in rent prices in markets that saw the biggest jumps since 2020 Additionally, new landlords of short-term rentals and homeowners might enter the rental business, further increasing the supply of available housing
Decreased Building Permits
2023 will be a challenging year for homebuilders as residential building permits are expected to decrease further Homebuilders will prepare for the eventual rebound by discounting unsold homes, disposing of unwanted land, and consolidating with smaller companies. High levels of uncertainty and risk/reward scenarios will be a significant factor in the industry
30-year Fixed Mortgage Rates Remain High
Mortgage rates are forecasted to remain high in 2023 due to economic uncertainty, investors expecting refinancing opportunities, and the Federal Reserve attempting to keep inflation at 2.0%. It is uncertain if this goal will be achievable in 2023.