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What 2023 Promises for Home Prices in Your Local Housing Market

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