Housing Market Predictions for 2023: When Will Home Prices Regain Affordability?

Housing Market Predictions

Housing Market Predictions for 2023: When Will Home Prices Regain Affordability? Even though the summer home buying season has begun, the housing market is still experiencing a winter chill.

According to Freddie Mac, the national average 30-year fixed mortgage rate remains elevated compared to last year, at 6.71%, only a periodic basis points below the year-to-date high of 6.79% reached in early June. This marked a 40 basis-point increase over the previous month. One basis point equals one-tenth of a percentage point.

According to the National Association of Realtors (NAR), existing home sales were essentially unchanged in May, gaining 0.2%.

Though the median existing-home sales price fell year over year for the fourth consecutive month, a positive indication for home buyers, experts do not expect significantly; nationwide price drops any time soon. Prices increased in the Northeast and Mid West in May but decreased in the South and West.

Home prices remain stubbornly high, creating affordability issues for many, particularly first-time home buyers. For one thing, the nation’s housing supply remains limited—and is likely to remain so for the foreseeable future—due, in part, to people who bought homes in recent years at record-low loan rates staying put.

Though home prices are not as high as the record-breaking month of June 2022, data indicate that where home prices fall or rise this year remains mainly region-specific.

Housing Market Forecast for July 2023

The buyer-seller deadlock remained unchanged in May, owing to improved mortgage rates and higher home prices, which continued exacerbating the housing affordability crisis as fears of sustained inflation, bank sector turbulence, debt ceiling turmoil, and an oncoming recession lingered.

Mortgage rates have fallen slightly since the Federal Reserve announced a pause in rate hikes at its June meeting. Long-term home loans, such as 30-year fixed-rate mortgages, are affected indirectly by Fed rate hikes.

Fed observers believe that recent, stronger-than-expected job and personal consumption expenditures statistics, combined with persistently rising inflation, may drive the Fed to resume rate hikes sooner rather than later.

These factors continue to pressure the housing market, which remains a mixed bag.

On the one hand, home buyers had good news: the median existing-home sales price fell 3.1% to $396,100 in May reached to a year ago, according to the National Association of Realtors. After 131 months of record increases, this is the fourth consecutive month of year-over-year national home price reductions.

The latest Federal Housing Finance Agency (FHFA) House Price Index (HPI) shows that home prices climbed 4.3% in Q1 2023 compared to Q1 2022, reaching a new high of 398.0 in March. The FHFA HPI is a set of home price indices that measure single-family home values in all 50 states and over 400 cities, with data from the mid-1970s.

According to the U.S. Census Bureau, new home sales increased by an estimated 12.2% month over month in May. The Census Bureau and the U.S. HUD stands for Housing and Urban Development.

“Home sales are bouncing back and forth but stay above recent cyclical lows,” said Lawrence Yun, chief economist for the National Association of Realtors, in a report. “Over the last several months, the combination of job gains, limited inventory, and fluctuating mortgage rates have made an environment of push-pull housing demand.”

Some Experts Foresee a Sluggish Housing Market Recovery

In the meantime, mortgage rates and the entire housing market continue to fluctuate.

Rates remain stuck between 6% and 7%, with the 30-year fixed mortgage rate reaching 6.79% on June 1—the highest since November 2022—before falling to 6.71% on June 29 throughout the month.

“If current economic conditions, with elevated mortgage rates and home prices amid scarce inventory, persist, the market is likely in for a long, slow climb with a few bumps along the way,” said Danielle Hale, chief economist at Realtor.com, in an emailed statement.

One of these stumbling blocks is the FHFA’s new mortgage fee restrictions. As of May 1, conventional mortgage borrowers who put down 5% to 25% would pay higher fees, known as loan-level price adjustments (LLPAs), than those who put down less than 5%.

Though the Biden-Harris administration modified existing mortgage charge laws to make homeownership “more attainable and affordable for lower- and middle-income borrowers,” some housing experts have criticized the shift, claiming that the higher fees will harm persons considered less risky.

While it is unclear how the mortgage charge reductions will affect home buyers, mortgage application volume remains low.

“We have yet to see sustained change in purchase applications because rates have been so volatile and for-sale inventory has been so scarce,” said Joel Kan, vice president, and deputy chief economist at Mortgage Bankers Association.

Given that mortgage rates are currently considerably above 6%, and 97% of borrowers have mortgage rates below 6%, a significant, sustained increase in mortgage applications is likely to occur sometime soon, according to CoreLogic.

“Damaged affordability remains an issue for interested homebuyers, and homeowners appear unwilling to lose their low rate and put their home on the market,” Freddie Mac’s chief economist Sam Khater said in a press release. “If this situation continues to limit supply, it may provide an opportunity for builders to contribute to the country’s housing shortage.”

Housing Inventory Outlook for June 2023

Low housing inventory has been a problem since the 2008 housing meltdown when the construction of new homes fell dramatically. It has yet to recover fully—and will not by 2023.

Housing supply remaining near historic lows has supported demand compared to earlier downturns, resulting in higher home prices.

“Inventory is approximately 46% below the historical average dating back to 1999,” says Jack Macdowell, Palisades Group’s chief investment officer and co-founder.

According to NAR, the unsold inventory of existing homes is at a 2.9-month supply at the current sales pace. Despite an increase from 2.2 months a year ago and 2.6 months in March, supply remains low by historical norms, particularly in light of pent-up demand.

With 85% of homeowners allegedly having mortgage rates below 6%, industry experts are pessimistic about when inventory will eventually normalize.

“We believe it is doubtful that the inventory problem will be resolved by 2023,” Macdowell says.

Housing Starts Forecast 2023

At the same time, there are some conflicting signals in the homebuilding industry.

According to the Census Bureau and HUD, single-family construction starts increased for the fourth consecutive month in May, climbing 18.5%, and building permit applications increased 5.2% from the previous month.

Building permits increased modestly as builder confidence continued to rise, albeit cautiously.

The most recent NAHB/Wells Fargo Housing Market Index (HMI) gauges builder sentiment increased from 45 to 50 points. This is the index’s fifth month-over-month improvement following 12 consecutive decreases, and it is the first time it has reached 50 since July 2022.

The 50-point mark is a great achievement. Several 50 or above indicates that more builders anticipate favorable conditions for new construction.

“New home construction is playing a larger role in the market because many homeowners with loans well below current mortgage rates are choosing to stay put, maintaining the supply of existing homes at a very low level,” said Alicia Huey, chairman of the National Association of Home Builders.

Even as builders attempt to fulfill demand, they face headwinds such as higher supply costs, a construction labor shortage, and tighter lending conditions due to the Federal Reserve’s relentless interest rate hikes.

“Homeowners, homebuyers, lenders, and builders are all attempting to adapt and predict interest rates, home prices , demand, supply, and the possibility of a Fed-induced recession,” Macdowell says. “As a result, builders may be hesitant to begin new projects that would bring much-needed housing product to market.”


Will the Housing Market Crash in 2023?

Many analysts believe that the housing market will correct itself from the double-digit percentage increases in home prices we’ve seen over the past few years rather than crash, owing in part to the continued inventory constraint that has kept home prices elevated.

Before seasonal adjustment, the S&P CoreLogic Case-Shiller Home Price Index reported a 1.3% month-over-month national price rise in March. After adjusting for seasonal factors, the month-over-month rise was 0.4%.

This is the second consecutive month of moderate national increases following seven straight declines. According to experts, this recent trend indicates that home price reductions are now a thing of the past.

“Two months of rising prices do not constitute a definitive recovery,” said Craig J. Lazzara, managing director at S&P DJI, “but March’s results suggest that the decline in home prices that began in June 2022 may have ended.” “That said, the challenges posed by current mortgage rates and the continuing possibility of economic weakness will likely remain a headwind for housing prices for at least the next several months.”

Nonetheless, whether home prices climb or decline in the next months depends on where you look.

For example, southeast metros such as Miami, Tampa, and Charlotte, North Carolina, saw year-over-year gains ranging from 4.7% to 7.7%, but it’s a different story in other areas, most notably Austin, Texas; Boise, Idaho; Salt Lake City, and West Coast areas that experienced significant price increases during the pandemic.

“The further west we look, the lower the prices become, with Seattle (-12.4%) now leading San Francisco (-11.2%) at the bottom of the league table,” Lazzara stated. “It’s unsurprising that the Southeast (+5.4%) continues to be the country’s strongest region, while the West (-6.2%) remains the weakest.”

Despite price drops in some areas, experts say today’s homeowners are in a much better position than those who emerged from the 2008 financial crisis, with many borrowers having positive home equity. As a result, the risk of a housing market crash is low.

“Homeowner equity is at its highest level in the past several decades, so homeowners have a lot of value in their home,” says Nicole Bachaud, an economist at Zillow.

Will There Be a Lot of Foreclosures in 2023?

According to ATTOM, a property data provider, foreclosure filings were down 10% from March but up 8% from the previous year in April. Foreclosure completions were 39% lower than the previous month but 3% higher than a year earlier.

“Foreclosure activity continues to stabilize and even correct itself in 2023, with April showing a 10% reduction in overall activity after a 20% increase [in March],” stated ATTOM CEO Rob Barber.

Nonetheless, Barber highlighted that a decrease in foreclosure activity is a normal April tendency and that further foreclosure drops are not a guaranteed conclusion.

It’s also worth noting that while foreclosure rates are up yearly, experts do not expect a flood of foreclosures in 2023, even in areas where home values are declining, because many homeowners have large equity due to recent progressive home price rise.

When Should I Buy a Home in 2023?

They are buying a house in whatever market is a highly personal decision. Because homes are the most expensive single purchase most individuals will make in their lives time, it’s critical to be financially prepared before diving in.

Estimate your monthly housing costs with a mortgage calculator based on your down payment and interest rate.

Predicting what will happen this year is not the ideal homebuying plan. “Buyers sitting on the sidelines today expecting low prices tomorrow may end up disappointed,” says Neda Navab, head of Compass, a real estate technology company.

“The housing market—like so many other markets—is almost impossible to time,” says Orphe Divounguy, a senior macroeconomist at Zillow Home Loans. “The best time for prospective buyers is when they see a home they like, one that satisfies their family’s current and foreseeable needs, and one that they can afford.”

To start accumulating equity and net worth, Divounguy says it’s important to “get on the housing ladder.”

Experts advise buying a home based on your budget and need rather than waiting for considerably lower prices. If you find a home in an area you love that fits your budget, it’s likely appropriate for you. However, if you make too many sacrifices to purchase a house, you may have buyer’s remorse, causing you to sell the house.

Tips for Buying in Today’s Housing Market

Even if prices fall, you may discover that the area where you want to buy a home is still out of your price range, so it’s critical to be flexible.

“Moving to lower-priced housing markets is a good idea to think if you desperately want a house and can work remotely or switch jobs,” says Robert Frick, corporate economist at Navy Federal Credit Union. “Millions of Americans have done that already.”

Also, prepare by reviewing your financial status, gathering relevant paperwork, shopping multiple lenders, and strengthening your credit score. Finding your dream home will make you better positioned to act quickly in a competitive market.

“Only the best prepared will be successful in today’s highly competitive market,” says Frick, “with their financing lined up, a solid understanding of what they can afford, and constant checking of prices and listings.” “Know how much your monthly payment will be—including taxes—and how well it fits into your budget.”

Getting to know a local realtor in the area where you want to buy also provides you an edge in a competitive housing market.

“Speak with a reputable, experienced agent to learn about your options,” says Divounguy. “Buyers should expect plenty of competition due to a lack of inventory, especially in more affordable areas and for more affordable houses,” the article says.

However, if you are a first-time purchaser, you must exercise extra caution when selecting an agent.

“With the market’s shift, you’ll want to hire an expert who’s been there before, has a pulse on all the changes occurring in your desired neighborhood, and works well with your loan officer.”

Tips for Selling in Today’s Housing Market

“Sellers should ensure they work with an agent,” says Divounguy.

Divounguy says that homes that are priced correctly attract competition while others languish on the market.

She also recommends sellers ready their houses for market as soon as possible.

“The top regret we listen from sellers year after year is that they wish they had started prepping their home for sale sooner,” Divounguy says. “Don’t forget about your online curb appeal.”

Divounguy also suggests that sellers add a 3-D virtual tour of their home or an interactive floor layout in their listings. She claims that listings on Zillow that include these virtual tools receive 69% more page views and 80% more saves.

Frequently Asked Questions (FAQs)

Will rising interest rates lower home prices?

Rising mortgage rates have not necessarily resulted in reduced home prices in the past. Rising loan rates cause home value growth to contract. However, given the rapid rise in interest rates in 2022, home prices could fall further in 2023. Home price trends also depend on how well supply can meet end demand.

What will happen if the housing market crashes?

Most experts do not predict a housing market catastrophe in 2023 because many homeowners have large equity in their homes. The primary issue is affordability. High mortgage rates and increased home values have made it hard for first-time homebuyers to purchase a home.

Is it smart to buy real estate before a recession?

If you have the financial means to buy a home that you want to live in for the long term, it makes little difference when you buy it because you will live in it via economic highs and lows; however, if you are trying to buy real estate as a short-term investment, buying at the peak before a recession would carry a higher risk.

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