Market Predictions for 2023
While Not Rosy, Still Fair Share of Opportunities Ahead By Erica LaCentra As we head into the fourth quarter of 2022, predictions for what the real estate and housing market will look like in the coming year are pouring in. As mortgage rates continue to rise due to interest rate hikes by the U.S. Federal Reserve as a means of combating inflation, the general consensus across the industry is that we must deal with the reality that the housing market is in decline and will likely get worse in 2023 before it gets better. Does this mean we are in for a housing market crash similar to what the industry experienced in 2006? That seems like a very unlikely reality, and thankfully, a dramatic price crash and subsequent financial crisis do not appear to be in the cards. However, the changes that we are likely to see in the market will be substantial for both homebuyers and investors alike. So, let’s dig into the major predictions for the housing market for 2023, and ultimately how to prepare for any fallout they may cause. The Future of Home Prices Two of the biggest ongoing. questions on anyone in real estate’s mind are will home prices finally go down in 2023, and if so, by how much? Since the pandemic, home prices skyrocketed due to housing supply shortages and historically low-interest rates with many outlets quoting that home prices are up 40% since just March of 2020. Even as we approached the halfway point of 2022, home price growth had not shown much sign of slowing down. According to the CoreLogic Home Price Index, “national home prices increased 18.3% in June 2022 compared to a year ago. This growth followed the highest 12-month increase in the U.S. index since the series began in 1976 when April saw prices jump 20.3%.” It does look like prices are finally starting to cool down and that is predicted to continue into 2023. And it will be at a very slow pace. According to forecasts by Fannie Mae, it will not be until “the end of 2023 when home inflation returns to the 5% pace seen before the pandemic.” And even then, it seems like the baseline for U.S. home prices which we have seen set over the last few years, are likely here to stay. Fannie Mae is further forecasting that the median price of a previously owned home will surpass $400k by the end of 2023 and the median price of a new home will end at a record high of $464k by the end of the year, about $100k more than where the price of a new home sat in 2021. All of this calls into question issues of affordability for homeowners, which has been an ongoing problem since the pandemic hit. Those individuals that have been waiting for the right time to buy a home will likely be in for a mixed bag in 2023, with a better opportunity to find a property, as long as they have the means to afford it. Predictions for Housing Supply Another major topic on everyone’s mind as we look towards 2023, is will housing supply potentially start to improve with the market cooling. With home prices not likely to drop significantly in the near future and interest rates rising, many are hoping that this will finally provide a window for more inventory to potentially come on the market, or at least allow inventory to stay on the market for slightly longer to allow buyers a better opportunity as buyer demand remains strong. While there is the expectation that more inventory will be coming onto the market, there is the concern that homeowners will be less likely to list their homes for the remainder of 2022 into the new year, and we are already starting to see those concerns come to fruition. According to one of Redfin’s latest reports, “new listings of homes for sale were down 20% from a year earlier, the largest decline since May 2020.” So, the flood of inventory that homebuyers have been hoping for is still not likely, and any inventory that does come on the market is still not nearly enough to be able to put a dent in the supply issues that have been long-standing in the real estate market. Another area of concern when it comes to supply is the low level of housing starts in the U.S. that is not showing significant signs of improvement. Ongoing issues with material costs and labor have negatively affected this area of the market throughout the pandemic and this trend looks like it will potentially continue into 2023. Even with the construction sector experiencing an unexpected jump in August for both single-family and multifamily starts, with single-family starts growing 3.4% month-over-month and multifamily starts growing 28% month-over-month, housing starts overall are still struggling to meet demand. The single-family space specifically continues to be an area of concern when it comes to supply versus demand with weak builder sentiment and a 15.3% year-over-year decline in permits that a small jump cannot even hope to make a dent in. Unfortunately, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development “total building permits fell by 10% in August with single-family permits down 3.5% and multifamily dropping by 17.9%.” So, while the increase in starts in August was nice to see compared to the sad streak of declines earlier in the year, the drop in permitting likely spells trouble on the horizon as it is a clear indicator that builders are likely slowing down potentially as they see the housing market starting to slow overall. This spells trouble for inventory levels going into the new year as new construction is crucial to meet future market demand. A Seller’s Market or a Buyer’s Market Based on the predictions we are seeing around home prices and housing supply levels, the final question many in the industry are asking is, will
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