2023 - Red Pill Kapital, LLC

The annual inflation rate in the US was 7.7% for the 12 months ending in October 2022, and for the third week in a row, the 30-year fixed mortgage rate stayed above 7%. After several years of ups and downs, no one is quite sure what the local housing market has in store for 2023.

The housing market in the US is currently experiencing a significant slowdown. However, experts have different opinions and forecasts regarding the impact of the economy on home values in the US in the coming year.

Here is a look at predictions made by major financial institutions, research firms, and real estate investment companies on the 2023 home prices.

Wells Fargo

According to their latest predictions, median prices for single-family homes throughout the country would fall by 5.5% between now and the end of 2023.

Their economists predict that the median price of an existing single-family home will rise to $385,000 this year, an increase of 7.8% from last year but much less than the 19% annual increase predicted in 2021.

The analysts also expect the median home price to drop to $364,000, a decrease of 5.5% from this year. They forecast a 3.3% increase in prices in 2024, bringing the median price to $366,000 by that year’s end.

Morgan Stanley

This major financial institution is the most recent member to join the growing group predicting a housing correction in the housing market.

Its analysts predict that 2023 will see a decrease in home values throughout the United States’ most expensive housing markets due to the impact of rising mortgage rates. Morgan Stanley forecasts housing prices in the US will drop by 7% by the end of next year.

Zillow

Zillow issued a bold prediction during the hectic spring house-buying season, claiming that US home prices would increase by an additional 17.8% between February 2022 and February 2023 due to the Pandemic Housing Boom.

It, however, reported that property values fell in 117 local markets throughout the country between May and August. There were 36 markets where the drop was more than 3%. These marketplaces fall into two categories: expensive tech hubs like San Francisco or overheated boomtowns like Austin (7.4% decline) and Boise (5.3% decline).

Although property values fell in 117 markets this summer, they increased in 779 others. These increases were especially noteworthy in East Coast cities like Miami (up 4.1%) and Myrtle Beach, South Carolina (up 4.5%).

Going by current trends, Zillow forecasts a 2023 housing price decline in some areas while gaining traction in others. Zillow revised its house value prediction downwards between August 2022 and August 2023 from 2.4% to 1.2%.

According to Zillow’s researchers, recent home market indications show buyers are holding back while affordability barriers remain as high as they have been in recent memory, prompting the downward revisions.

Home prices in Boise and Phoenix, for example, fell sharply last summer, but Zillow predicts a slight recovery in those cities in 2023. Zillow forecasts an increase in Boise and Phoenix home values by 4.3% and 1.7% over the next 12 months.

Zillow also predicts that property values will decrease in 271 locations throughout the country between September 2022 and September 2023 while rising in 607 markets and remaining unchanged in 19 others.

Goldman Sachs

In August 2022, Goldman Sachs forecasted that the housing market would decline further in 2023, with home price growth coming to a complete halt, averaging 0%. They expect that by October, prices will slip down further.

According to an analysis posted on the investment bank’s website, their analysts, using their G-10 home value model, predicted that home prices in the United States will fall by 5% to 10% due to rising mortgage rates from their recent highs.

The economists warn that the housing market could fall even more than their model predicts because of the dire signals from home price trends and housing affordability.

Moody’s Analytics

As of August and again in September, Moody’s Analytics lowered its prediction for the US housing market. According to Fortune, Moody’s forecasts a peak-to-trough decline in US home prices between 5% and 10%, but the organization is also watching what it considers highly overvalued property regions, where it expects reductions of 10% to 15%.

This forecast has its basis on the assumption that the US will not enter a recession. Moody’s Analytics chief economist Mark Zandi estimates a 15%-20% drop from peak to trough in home prices in the event of a downturn.

Fannie Mae

According to Fannie Mae, several economic indicators indicate a possible recession in 2023. Doug Duncan, senior vice president and chief economist at Fannie Mae noted that the Fed’s efforts to combat inflation have the intended impact on the housing market.

Duncan anticipates the housing slump to persist through 2023 due to rising mortgage rates and property prices, making purchasing a home challenging for many people. However, Fannie Mae has given no negative annual forecast for home prices in 2023.

CoreLogic

According to the S&P US home values tracking CoreLogic Case-Shiller Indices, prices nationwide soared by 13.5% in August 2022 compared to last year.

The index predicts home prices will remain unchanged month over month from August to September but will rise by 3.2% year over year from August 2022 through August 2023.

Final word – Will 2023 be a buyer or seller market?

Real estate has been a seller’s market for two years since the epidemic struck. However, recent economic changes seem to suggest the tide is shifting.

The rising cost of borrowing has significantly reduced the affordability of purchasing a property. The housing affordability index published by the National Association of Realtors shows that existing-home sales have declined for seven consecutive months through August.

Many economists, researchers, financial institutions, and investment firms predict that home prices across the US will drop by at least a few percentage points, possibly as much as between 5% to 15%, in 2023. Significant declines will likely occur in the more expensive markets.

Further, there is still limited inventory in the market, and considering the unfavorable market conditions, builders will likely scale down production. All this points to a market that will probably maintain equilibrium without tipping drastically toward one side or the other.

By Gurpreet Singh Padda, MD, MBA

We are just barely into the second half of the year 2022. Much of the economic news is doom and gloom; perhaps it’s best to look into the future if one wants to find an iota of good news. For that, a glimpse of the past could provide near-accurate future predictions.

Six months on, the Russia-Ukraine war is causing a considerable downturn in every sector of the economy, including the real estate market. The ongoing war has triggered fears of a global recession, with the World Bank dropping its growth prediction from 4.1% in January to 2.9%, causing supply chain disruptions, high commodity prices, inflation, and food insecurity.

While COVID-19 might seem like a thing of the past for most Americans, pandemic lockdowns are still alive and kicking in the “world’s factory,” China. That translates to supply chain issues, which explains why there’s a push to bring some of those jobs back onto American shores. With that background, here are the top trends in real estate to watch out for in 2023.

1. Housing Prices Likely to Remain High

According to Zillow, the typical monthly mortgage payment increased 75% between June 2019 and today. The National Association of Realtors (NAR) also states that home sales dropped 5.4% from May to June, marking the fifth consecutive month of declining sales—but median prices reached a record high in June: $416,000, up 13.4% from a year ago.

Although incomes have risen over the same period, they haven’t kept up with inflation. Wage growth in June was 6.7%, below the 9.1% rise in inflation that month. Moreover, mortgage rates continue to stagnate, and there’s the ever-present threat of further interest rate hikes. The overheated markets of early 2022 will drop precipitously in the later half of 2022 and most of 2023. But that still means, even if home prices were to drop 20-35%, they probably would remain beyond the reach of most first-time homebuyers.

2. Expect an Uptick in Mortgage Defaulters

To fight rampant inflation, the Federal Reserve activated its nuclear option—hefty interest rate hikes. Inevitably, mortgage rates rose as well, with the national average mortgage rate hovering at 5.08% as of August 2022.

Considering the August inflation rate is in the upper 8%, higher than the long-term average of 3.26% and the Fed’s target rate of 2%, it’s inescapable that the Fed will announce further interest rate hikes.

That means higher mortgage rates, and since the wage growth in June was 6.7%, below the inflation rate. As the economy continues to contract, you should expect an uptick in mortgage defaulting that will likely stretch to 2023 and beyond, and more people are likely to choose adjustable-rate mortgages over fixed-interest mortgages.

3. Affordability of Homes Still a Problem

Affordability of homes is still a challenge for many Americans, but it’s not the only one. According to a recent survey by Pew Research Center, 46% of Americans say affordable houses are still a challenge.

That is exacerbated by the rising cost of rent, with New York recording an average of $3,500 in June 2022, an all-time record high. With the raging inflation and considering rent prices hardly drop significantly over time, it’s difficult to see how homes will become more affordable in the near future.

The only hope lies with the Fed cooling down inflation sufficiently, imposing more agreeable interest rates, and the cost of living dropping significantly to lower the price of everything, including real estate.

4. Suburb Living and Higher Prices in the Suburbs

With rental prices in major cities shooting past most people’s capabilities and mortgage prices continuing to lock people out of home buying, there’s a push towards moving to the suburbs to access affordable housing.

More employees are also pushing for more opportunities to work from home to save on the daily commute. That should see the prices of suburban houses rising to meet this new demand, which should persist into 2023.

5. Prevalence of Technology Usage

The trend of increasing use of technology in real estate is nothing new, but it has become more widespread in the last few years. For instance, the NAR states that 97% of all homebuyers used the internet to search for a new home.

That trend will continue, allowing homebuyers to access a broader home listing catalog. The same is true for realtors as it will enable them to advertise to get their listings before more prospects. The apps and websites also come with matching and software to make it easier for buyers to filter homes that fit their descriptions better.

Technology also comes in handy when showcasing a home. Instead of hosting an open day which may force prospects to travel great distances, a real estate agent can conduct virtual home tours. Virtual staging will save the agent a ton of money as they don’t have to spend time and money collecting and setting up furniture that matches a listing.

You’re also likely to see an increase in drone videos and photos to capture stunning overhead footage of properties and the surrounding amenities to enhance the desirability of the listing. Social media sites that use videos and photography, such as YouTube, Instagram, and TikTok, may also prove vital as independent platforms for showcasing real estate.

6. Emphasis on Amenities as a Selling Point of a Home

In the next few years, you will see a substantial shift in how people choose where to live. What was once a matter of location, price, and square footage will soon become a question of amenities.

As more people focus on their health and wellbeing, they’ll look for homes that offer more than just a place to rest their heads. They’ll want easy access to gyms and pools, dog-friendly apartments, and pet-sitting services—and they’ll even want walkable neighborhoods with local stores and restaurants.

7. Luxury Homes

The need for luxury homes has steadily risen over the past few years. These refer to homes that go for $1 million in the smaller cities. In major cities, that starts at $4 million.

According to luxury home marketing, single-family luxury homes only spent 12 days in the market in 2022, compared to 38 days in 2020. At 41.6%, the growth in luxury home sales in 2021 outpaced other segments of the market, such as affordable homes at 7% and mid-priced homes at 5.9%. This trend will likely continue to 2023 and beyond as the trend for buyers looking for luxury homes seems to be going strong.

Final Word

We can use historical patterns to chart a course for future trends, and what that teaches us is that housing prices will cool down but will likely remain higher than most people can typically afford. Additionally, we will likely experience in the real estate market are the continued high demand for luxury homes, emphasis on amenities for healthy living, the prevalence of technology usage, and the continued preference for suburban living.