2023 Housing Market Predictions: Trends To Watch For

Predictions are like paintings. Anyone can make one, but that doesn’t mean it’s going to be any good. Still, housing market predictions can help those who might be considering whether to buy or refinance to set a baseline for the general direction of the market.

In this article, we’ll take a look at expert opinions on where various measures for the housing market are headed through the end of 2023. You may notice quite a bit of variability. Before taking any action, take a close look at your financial situation and your goals. You should also consult a financial advisor.

Mortgage Rate Forecast: 2023 Interest Rates

No one wants to pay more than they have to when it comes to interest, but what really matters if you’re looking to buy a home, make improvements or consolidate debt is payment affordability. There’s often too much focus on the rate itself. Nevertheless, let’s take a look at where we’ve been and what you could possibly expect in the future.

Previous Trends In Interest Rates

As a result of the pandemic and a desire to support the economy through it, the Federal Reserve made a decision to lower the target range for the federal funds rate to near zero in March 2020. While not directly related to mortgage rates, there’s a correlation. If it’s cheaper for banks to borrow money, the savings is passed on to consumers. Mortgage rates ended up at record lows.

In early 2022, the Federal Reserve found itself confronting higher inflation. The primary way that this has historically been handled is to raise interest rates. If borrowing money becomes more expensive, people are more hesitant to spend the money they have. This brings prices down over time.

At the end of 2022, rates were at 6.42%, but they had been as high as 7.08% for a 30-year fixed mortgage as recently as the end of October. Compared to the end of 2021, interest rates were up 3.31% year-over-year.

Future Projections For Interest Rates

In theory, the Federal Reserve has a major impact on mortgage interest rates. The federal funds rate is correlated, but it’s also been directly involved in purchasing mortgage-backed securities to try to bring rates down. However, lately, officials have been selling them to try to push rates up and prices down.

However, we aren’t in a normal market right now. There have been bank failures that are being taken by some in the market as a sign of financial stress. That being the case, mortgage rates have begun to come down even as inflation hasn’t fallen at the pace the Federal Reserve would like to see. As of April 6, 2023, the average 30-year fixed mortgage rate was at 6.28%, according to Freddie Mac.

For the rest of the year, projections are a bit mixed. Fannie Mae sees the 30-year rate coming in at a 6.5% average. Meanwhile, the National Association of REALTORS^® (NAR) expects 5.7% and the Mortgage Bankers Association (MBA) says rates will be down to 5.3%. Finally, the National Association of Home Builders (NAHB) predicts rates of 6.68%. It’s really quite a hard market to read.

Real Estate Market Predictions: Home Prices

The other piece of a two-sided affordability equation with interest rates are the price of homes themselves because this can have an effect on the loan amount and monthly payment you get.

Previous Trends In Home Prices

Home prices are important not only for selling your home, but also because the value of your home determines how much home equity you have to complete a refinance should you wish to do home improvement or go ahead and consolidate debt.

In the past couple years, prices have gone through the roof. During the pandemic, demand was high as people realized they were no longer into their current space given lifestyle changes. The level of increase depends on where you look, but prices were up over 19% according to Case-Shiller on a seasonally adjusted basis between January 2021 and January 2022, supported by low rates.

Future Projections For Home Prices

It’s possible to find data regarding how home prices are performing nationally, but it often doesn’t mean much because everything comes down to local markets. In this case, it’s best to look at something like Case-Shiller data, which takes a look at home prices across 20 major metros.

Higher rates have had an impact on prices, but not at the level you might think and not equally across the board. For example, several cities on the West Coast were highflying during the low-rate boom of the pandemic. Now California cities like San Diego and San Francisco have seen price declines of 1.4% and 7.6% compared to January of last year.

Florida is a hot market. Prices in Miami are up 13.8% on the year. Tampa has a 10.5% pace of appreciation. In New York, prices are up 5.2%. Overall, only four of the 20 cities in the survey found themselves in negative territory compared to January 2022 in terms of home prices. However, the pace of price growth might be slowing because there were monthly price drops in every city.

It’s reasonable to assume that the pace of price growth will slow and some of the hottest markets in 2022 may actually see price drops in 2023 as a result of higher rates. But this is all very speculative because this stuff tends to vary from neighborhood to neighborhood even.

Housing Inventory’s Impact On The Real Estate Market

Housing inventory is the third big factor that impacts affordability. Simply put, it comes down to the law of supply and demand. If there is a lot of demand and very few houses, it can mean higher prices while lots of houses with lower demand levels can mean lower prices.

Previous Trends In Housing Inventory

Housing inventory has been very low for a while now. Most people buy existing homes because they can be cheaper than new construction. However, it’s easier to find data going back further and understand patterns if we look at the supply of new homes.

The last time inventory was anywhere near this short would have been in the mid-2000s. That was right before the housing crash of 2008 – 2009. At that point, inventory went way up due to foreclosures. We’ll get there a little later on, but this isn’t likely to happen today.

However, since then, supply of new homes has been fairly low up until very recently. Builders are playing catch up ever since the pandemic. For a while, restrictions made construction slow. Builders also reassess somewhat any time rates rise because they need to make a profit and people have less money to give when rates are higher. New home supply currently sits at 8.2 months relative to the current pace of sales. Existing home inventory is much lower.

Future Projections For Housing Inventory

There are signs that inventory could be a challenge for the remainder of the year. For its part, the NAHB is predicting fewer housing starts this year. This holds for both single-family homes and multifamily residences with 5 units or more. There are projected to be 382,000 fewer units started this year, with the bulk of the cuts coming from the single-family side.

On the existing homes side, current inventory is at 2.6 months. For context, a market in balance between buyers and sellers generally has 6 months’ of supply. In that sense, it’s a seller’s market. On the other hand, there’s the chance it could become more of a buyer’s market as 2023 wears on. That requires a bit of an explanation.

Inventory is so low right now because those who might ordinarily sell won’t give up a mortgage rate that could very well be in the 2% – 3% range. Those who are selling are likely doing so because they need to sell. The longer the home sits unsold, the more likely they are to lower the asking price or help with closing costs. Your real estate agent can help you negotiate.

Should I Buy A House In The Current Housing Market?

Buying a house is always going to be a personal choice that comes down to a variety of factors including your needs and your financial situation. There’s no doubt that the current housing market is a difficult one for first-time home buyers in particular. Interest rates are going up, but prices haven’t come down, so there’s an affordability challenge.

However, it’s important not to focus so much on the rate, but rather on the monthly payment. Here are some of the factors to think about:

The Future Of The Housing Market: FAQs

Now that you understand the fundamentals when it comes to housing market projections, let’s go over a few other odds and ends.

Is there a risk of a housing market crash?

While there’s always a risk that any market will crash, this isn’t likely to happen in real estate right now. Credit standards are much tighter than they were before the 2008 crash and prices have begun to respond rationally to higher rates, so there’s not a bubble.

Will home prices rise in 2023?

Providing a blanket answer to this really isn’t possible, nor is it useful. Everything comes down to market conditions where you live. Speak with a real estate agent.

How will rising interest rates affect housing prices?

If interest rates were to continue to rise, prices would probably come down if the market behaves rationally in many markets. In other areas where there is more demand, prices might hold, but you would see a decrease in multiple-bidder scenarios.

The Bottom Line: Researching 2023 Real Estate Market Predictions Can Make You A More Informed Buyer

Anyone who tells you they can predict with certainty where the market is headed is probably fooling themselves. If they end up being right, go ahead and get the lottery numbers from them (and split the winnings with me for giving you the tip). However, what these articles can be good for is understanding what to watch for so you can spot trends in your area.

There is no one real estate market. There’s a plethora of individual markets in cities across the country. Knowing where rates are and combining that knowledge with local insights around inventory and home prices can put you in the best position to negotiate.