BAM's Key Details
- Realtor.com® released their 2023 Housing Forecast today.
- With the combination of higher mortgage rates and budgets tested by inflation, the cost of homebuying is not coming down in 2023.
- Instead, buyers will face less competition for a growing supply of for-sale homes.
Realtor.com® released their 2023 Housing Forecast today with mixed news for homebuyers—specifically those hoping 2023 will bring a drop in home prices to offset inflation and higher mortgage rates.
No such luck. Per the forecast, buyers shouldn’t expect a widespread decline in housing prices in the coming year. With the housing market undergoing a gradual adjustment—one that could last through 2025—it’s unlikely prices will go down on a large scale.
What buyers can look forward to, though, is less competition for a growing supply of for-sale homes.
We break down Realtor.com’s key predictions below.
Realtor.com’s 2023 Housing Forecast highlights
In a nutshell, here’s what you can expect in 2023 per Realtor.com’s forecast:
- Average mortgage rates at 7.4% — with hikes in early 2023 followed by a slight dip to 7.1% by the end of the year
- Rents—up 6.3% year-over-year—will outpace housing prices and likely reach new highs, further squeezing renter budgets
- Home sale prices won’t come down on a large scale, but price growth will slow to a single-digit yearly rate (+5.4%) for the first time since 2020
- Existing homes for sale will increase (+22.8% year-over-year) as the surge in inventory that began in summer 2022 accelerates
- Home sales will drop by 14.1% year-over-year to 4.53 million—the lowest since 2012
- The homeownership rate should hold steady in 2023
For-Sale inventory is expected to increase
According to the forecast, total housing inventory is expected to grow by 4.0% in 2022—and 22.8% in 2023.
In October 2022, active listings grew by 33.5% compared to October 2021, as homes spent nearly a week longer on the market than they did a year ago.
This doesn’t mean there will be a surplus of inventory. For context, inventory in 2023 is still expected to fall short of 2019’s average by 15%.
As mortgage rates are expected to remain around 7% through the remainder of 2022 and into 2023, inventory levels will likely continue their gradual growth as turnover slows.
The wildcard is seller sentiment and activity. In fall 2022, seller sentiment dropped as price growth expectations took a downturn and rising mortgage rates reduced the number of options for sellers-buyers. So, the question here is whether or not sellers will see the benefits of listing in 2023.
Rent growth will likely continue, but at a slower pace
As rents continue to grow, albeit by single-digit rather than double-digit increases, renters aspiring to homeownership will find it harder to save for a down payment.
Also, the national rental vacancy rate has been approaching historic-low territory, with only 5.6% to 6.0% of rental units vacant. And the rise in housing costs will likely keep more potential homebuyers in the rental market, further intensifying demand.
In a recent survey of renters, only 32.3% indicated they’re considering purchasing a home within the next 12 months.
Per the forecast, rents are expected to grow by 6.3% in the coming year, with renters facing limited supply and monthly payments that take up a larger portion of their income. Competition for rentals will keep upward pressure on rent growth, especially in urban areas within large metros.
That said, the premium on urban rents has shrunken enough to draw renters back to big cities to enjoy the greater diversity in social and cultural attractions.
Also, builders have ramped up construction of multi-family units that are typically rental properties. This should gradually increase the supply for renters.
Affordability is driving up cross-market demand
Affordability is predicted to outweigh other search criteria, driving up cross-market demand as more buyers shop for homes outside their current metro area.
In the third quarter of 2022, even when many remote workers returned to offices, cross-market home shopping reached new highs, accounting for nearly 61% of page views.
More than 7 out of 10 cross-market home shoppers from the Northeast and West were looking for homes in metros at least 10% cheaper than their current metro area.
Granted, relocating isn’t an option for everyone, but for home shoppers with the flexibility to do so, 2023 may be a good time to take that leap.
Cross-Market migration will help balance the housing market
Remote work and the rising cost of living are expected to keep affordability as a top priority for home shoppers. This may help to balance the market by stimulating price growth in smaller, more affordable markets and slowing price growth in more expensive metros.
This will drive down the prices in some of the higher-cost areas and boost prices in the lower-cost markets, shrinking the gap between them. If companies expand their operations in those smaller markets, raising local wages, the gap will narrow even more quickly.
As the market tightens at entry-level, demand for luxury real estate remains high
While listings for homes at the median price point are getting less engagement online, listings for homes priced at $1.1 million and higher are picking up the slack. Demand remains high as buyers of luxury properties are less affected by mortgage rate increases.
Entry-level homes are also in shorter supply, driving up prices at a time when home shopper budgets are being squeezed by inflation and higher mortgage rates.
Wildcards for 2023
The two key wildcards for 2023 will have the biggest impact on the accuracy of the predictions in Realtor.com®’s Housing Forecast.
Geopolitics & Global Trade — Russia’s invasion of Ukraine has caused untold suffering and loss of life, along with destruction and renewed disruption of global supply chains, contributing to inflation in the U.S. (and elsewhere) via the cost of energy.
Also, the combined impact of pandemic- and conflict-driven shutdowns could cause businesses in the U.S. and abroad to reconsider their involvement with international supply networks.
Mortgage Rates — In 2020 and 2021, mortgage rates took some of the sting out of rising home prices by keeping monthly mortgage payments low. Cut to the present, and the opposite is true, with 7% mortgage rates doubling monthly payments compared to early in the year.
For 2023, mortgage rates are expected to remain high as inflation begins to decline. In other words, homebuyers can still expect to pay more for everything, including their next home purchase.
We’re not looking at a repeat of 2008
Today’s buyers are better qualified than buyers in ‘08–-because they have to be. It’s much harder today for someone with poor credit to qualify for a mortgage, even for first-time homebuyers going the FHA route.
This year’s spike in mortgage rates brought an end to the most recent buyer frenzy by sidelining potential borrowers who could no longer afford the monthly payment for the homes they were looking to buy.
Moving into 2023, home price growth is expected to slow (and might even decline periodically) as prices stabilize over the next two to three years.
And with all the challenges this market brings to homebuyers and sellers, the homeownership rate for 2023 is expected to hold steady.