Future Forecast

2023 Market Predictions

Windermere Chief Economist Matthew Gardner, shares insights into the year ahead.

Will the hottest markets remain hot or cool down?

Higher-priced markets, as well as secondary markets where prices have skyrocketed, will likely perform below their long-term averages in 2023. Examples of these markets are Seattle, Tacoma, and Walla Walla in Washington; Portland and Hillsboro in Oregon; Los Angeles and Santa Clara California; Boulder, Colorado; and Eureka, Nevada. This will mainly be a function of affordability and higher financing costs. That said, not all markets are created equal, and I expect prices to rise at a decent pace in places like Port Angeles and Aberdeen, Washington; Newport, Oregon; El Centro, California; Pueblo County, Colorado; Kalispell and Missoula, Montana; and Logan, Utah.

How has COVID-19 affected the housing market?

Early during the pandemic, the Federal Reserve jumped in to stabilize the economy, and one of the tools they implemented was quantitative easing, whereby they started buying mortgage-backed securities and US treasuries to reduce interest rates and expand the money supply.

For the housing sector, their efforts caused mortgage rates to fall to an all-time low of 2.68 percent in December 2020. With remarkably cheap money available to buyers and the newfound ability to work from home, sales skyrocketed in 2021 with 6.1 million homes selling—a level not seen since before the market crashed in 2007. I also noticed that COVID-19 led to a resurgence in demand for suburban homes, which makes a lot of sense as buyers were no longer chained to neighborhoods that were proximate to their places of work.

However, with the Fed’s move to cease buying treasuries and mortgage bonds, rates have since risen significantly. This, in conjunction with affordability constraints, has led demand to slow significantly. This will also lead home price growth to slow from the pace seen in 2021.

Can we expect to see an improvement in contractor response and project times?

That’s a tough one. Today there are about 397,000 people working in single-family construction. That’s down from over 635,000 back in 2006; and when you add to this the 375,000 job openings in the broader construction sector, we simply do not have enough workers in the industry.

Quite frankly, the issue is that young people do not appear to want to get into the trades. Those working in this sector realize that their services are in demand, and that means they can demand higher wages. This continues to put significant upward pressure on builder costs, which, in turn, means that new home prices must rise to cover the additional cost.

That said, with slowing demand from buyers, and builders’ inventory levels rising, new home starts have slowed significantly. As a result, contractors may begin to be more willing to bid on jobs for current homeowners; but it is still hard to find a remodeler, and I don’t anticipate that getting significantly better in the near term.

What other predictions can you offer?

Readers should not try to compare today’s housing market with that of the 2007 housing crash. There is no bubble. But after twoplus years of frenetic activity, the housing slowdown may feel to some as if the market is imploding.

In the coming year, I expect the housing sector to move back to a more sustainable pace, with around 5 million home sales in 2023, but that will still be down substantially from the 6.1 million transactions in 2021. Prices will rise next year, but by a far-more-reasonable 3 percent, which would be a far cry from the 18 percent growth we experienced in 2021.

Homeownership is still the American dream, but my biggest fear is that prices and mortgage rates will make it very difficult for first-time buyers. There are almost 32 million Americans between the ages of 25 and 31, and as they get older, most will want to buy a home. My question is, will they ever be able to afford one?