Experts Predict Declining Home Sales, Stable Prices in 2023
John Jordan | December 19, 2022
WASHINGTON—What seems evident from the forecasts from a host of noted real estate experts and economists, including National Association of Realtors Chief Economist Lawrence Yun, is that while 2023 will be a difficult year for many, it will in no way mirror the severe downturn the industry suffered in 2008.
While some differ on whether there will be a recession this coming year, all are in unison that if there is a recession, it will be mild. NAR’s Yun forecasts that 4.78 million existing homes will be sold in 2023 and prices will remain stable. Yun unveiled the association’s forecast on NAR’s fourth annual year-end virtual Real Estate Forecast Summit on Dec. 13.
He also offered some good news for real estate professionals and prospective homebuyers as he believes mortgage rates have hit their peak after eclipsing 7% in late 2022. Yun expects the 30-year fixed mortgage rate to settle at 5.7% in 2023 as the Fed slows the pace of rate hikes to control inflation. He also noted the 2023 rate is lower than the pre-pandemic historical rate of 8%.
Yun’s prediction for mortgage rates in 2023 is significantly lower than some other economists. For example, Danielle Hale, Chief Economist for Realtor.com, predicts the average mortgage interest rate for 2023 will be 7.4% and will end the year at 7.1%.
Yun predicts 2023 home sales will decline by 6.8% compared to 2022 (5.13 million) and the median home price will reach $385,800—an increase of just 0.3% from this year ($384,500). Home sales are expected to decline 16% in 2022, which would calculate out to the lowest level since 2014.
“Half of the country may experience small price gains, while the other half may see slight price declines,” Yun said. “However, markets in California may be the exception, with San Francisco, for example, likely to register price drops of 10%–15%.”
Yun expects rent prices to rise 5% in 2023, following a 7% increase in 2022. He predicts foreclosure rates will remain at historically low levels in 2023, comprising less than 1% of all mortgages.
Yun forecasts U.S. GDP will grow by 1.3%, roughly half the typical historical pace of 2.5%.
While back in August, Yun stated that the nation was already in a “housing recession” in terms of declining home sales and building, he stressed that the 2023 downturn will not be as difficult as years past. In a blog published on Dec.15, NAR’s Yun took a deep dive into the numbers to show that today’s housing market does not in any way resemble the 2008 recession and therefore he does not expect any crash in home prices in 2023.
He pointed to several key indicators of how the markets differ.
• The labor market remains strong. In the last major housing downturn, there were 8 million job losses in a single year. Now there are virtually none. Though layoffs in the technology and mortgage industries are occurring, they haven’t accumulated enough to form a net job loss, Yun noted. A strong job market bodes well for housing’s future.
• Yun also noted the subprime loans that were prevalent during the 2008 housing bust are basically nonexistent today.
• He also pointed to the fact that new-home construction prior to the 2008 crash was amounting to 7.65 million units annually. Today, it’s 4.6 million. Yun said there is currently “a massive housing shortage” from a decade of underproduction in the housing market.
• Another key point is that approximately 10% of all mortgage borrowers were delinquent on their loans in the previous housing bust. The mortgage delinquency rate is now at 3.6%, holding at historical lows, Yun said.
• Homes in foreclosure reached a rate of 4.6% during the last housing crash as homeowners who saw their property values plunge walked away from their loans. Today, the percentage of homes in foreclosure is 0.6%—also at historical lows, Yun said. He predicted foreclosures to remain at historical lows in 2023.
Realtor.com’s Hale recently noted in her forecast that the housing sales slowdown that took hold in 2022 as mortgage rates surged, is expected to continue in 2023. She predicts that as rates rise as the Fed tries to quash inflation while navigating a soft-economic landing, moderating home prices will not be sufficient to transform the housing market into a “buyer’s bonanza.”
She stated, “Instead, home shoppers will enjoy advantages such as a growing number of homes for sale, but costs will remain high, challenging affordability at a time when overall budgets continue to be squeezed. If home shoppers and sellers have unrealistic expectations, they could find themselves in a stale-mate in the year ahead. The 2023 housing market could become a ‘nobody’s-market,’ not friendly to buyers nor to sellers. Consumers who are ready for the challenge will need up-to-date information on market conditions, creativity and flexibility to adjust, and a healthy dose of patience in order to create success.”
Overall, in 2023, Realtor.com forecasts that buyers and sellers can expect home sales prices won’t come down, but growth will moderate to a single-digit yearly pace (+5.4%) for the first time since 2020. It also expects rents to grow 6.3% year-over-year and likely hit new highs, further adding to budget pressures, particularly for first-time home buyers. Home sales will decline 14.1% year-over-year to 4.53 million, the lowest level since 2012.
The homebuilding industry will definitely be taking a hit this year. Danushka Nanayakkara-Skillington, AVP, Forecasting & Analysis, National Association of Home Builders, said at the NAR Real Estate Forecast Summit that Builder Confidence has been down for 11 straight months and is now at 33. The NAHB expects new single-family home starts to decline by 25% in 2023 to below 750,000 units.
She said that while publicly-traded home builders may weather the storm, smaller privately-held firms will definitely feel the impacts of the slowdown in the coming year.
“In the U.S. we expect economic growth to slow, but to avoid recession,” said Realtor.com’s Hale at the NAR Real Estate Forecast Summit. She said that Realtor.com expects the inflation rate to slow, which could bring mortgage rates down faster than they have predicted.
NAHB’s Nanayakkara-Skillington said the homebuilders association believes there will be a “mild recession” in 2023 with the unemployment rate rising to above 6% and conditions improving in 2024.
“I think it all hinges on monetary policy,” she said, adding that if the Federal Reserve’s actions are more aggressive than anticipated in 2023, “things could get much worse.”
Lisa Sturtevant, Ph.D., Chief Economist, Bright MLS, noted at the NAR Real Estate Forecast Summit that if the nation enters a recession in 2023, it will likely be a mild economic downturn. She said a key issue next year will be whether consumers continue spending in light of high inflation and other negative economic forces. If consumers re-think their spending and particularly hold off on big-ticket purchases, that could have a negative impact on home sales.
Bright MLS is a major multiple listing service in the Mid-Atlantic region, and currently covers six states (Delaware, Maryland, New Jersey, Pennsylvania, Virginia, West Virginia) and the District of Columbia.
Selma Hepp, Ph.D. Executive, Research & Insights; Interim Lead of the Office of the Chief Economist for CoreLogic, pointed to the recent favorable Consumer Price Index report, which showed inflation declining to 7.1% in November from 7.7% in October. The data builds on a continuing trend of moderating inflation since June’s 9.1% peak.
“I do anticipate a softer landing at this point,” Hepp said. She cautioned, however, that because there has been so much discussion on the possibility of a recession, that perhaps “we are talking ourselves into a recession.”
At the NAR Real Estate Forecast Summit, NAR released its “Top 10 Real Estate Markets to Watch in 2023 and Into the Future.” They were:
Atlanta-Sandy Springs-Marietta, GA
Dallas-Fort Worth-Arlington, TX
Fayetteville-Springdale-Rogers, AR, MI
Charleston-North Charleston, SC
San Antonio-New Braunfels-TX
“The demand for housing continues to outpace supply,” Yun said. “The economic conditions in place in the top 10 U.S. markets, all of which are located in the South, provide the support for home prices to climb by at least 5% in 2023.”
NAR selected the top 10 real estate markets to watch in 2023 based on how they compared to the national average on the following economic indicators: 1) better housing affordability; 2) greater numbers of renters who can afford to buy a median-priced home; 3) stronger job growth; 4) faster growth of information industry jobs; 5) higher shares of the information industry in the respective local GDPs; 6) migration gains; 7) shares of workers teleworking; 8) faster population growth; 9) faster growth of active housing inventory and 10) smaller housing shortages.