What's The Outlook For The Housing Market in 2023?
The following article includes views from Reports on Housing by Steven Thomas and other economic experts. It is not a reflection of the opinions, views, or predictions of Nuvision and its representatives.
As we head into 2023, the economy and the housing market are high on the list of worries for many homeowners. Unfortunately, housing sales have fallen for the ninth consecutive month, with transactions down 28.4% compared to last year. Nationwide, prices have also come down, with the average home price down to $379,100 compared to $413,800 in June.
Why are we still seeing problems in the housing market?
According to Real Estate expert Steven Thomas, author of Reports On Housing, what we are seeing today is a direct result of the Federal Reserve's announcement in June that they had plans to "reset" the U.S. housing market.
"All year long, the Federal Reserve has been in the news. Inflation had become enemy number one, and they were going to do everything in their power to tamp down out-of-control inflation," said Steven Thomas. "Prices of goods, services, food, and energy were climbing at an unhealthy rate. Home values had soared by over 40% in just two years."
Jerome Powell, chair of the Federal Reserve Board, delivered speeches in December of last year, March, June, August, and September of this year, and with each speech, the tone increasingly became more vigilant. For example, in June, after delivering his prepared press conference remarks, Jerome Powell was asked about their outlook for the housing market. He stated that housing needed "a bit of a reset."
What is coming in 2023?
While 2022 saw a significant cooldown "reset" in the housing market, opinions about 2023 are a bit mixed, but most say the issues will persist into the new year. According to Redfin, a residential real estate brokerage firm that operates over 100 markets in the United States and Canada, home sales will keep falling through 2023.
"It's unlikely that investors will return to the market in a big way anytime soon. Home prices would need to fall significantly for that to happen," said Redfin Senior Economist Sheharyar Bokhari. "This means that regular buyers who are still in the market are no longer facing fierce competition from hordes of cash-rich investors like they were last year."
"The housing markets that investors are backing out of fastest are those that rose rapidly during the pandemic and are now falling rapidly," Bokhari said. "That volatility creates a lot of uncertainty, which raises the risk of investors losing money."
Metros with Largest Declines in Investor Home Purchases: Q3 2022
U.S. metro area |
Investor purchases, YoY change |
Phoenix, AZ |
-49.4% |
Portland, OR |
-47.4% |
Las Vegas, NV |
-44.8% |
Sacramento, CA |
-43.2% |
Atlanta, GA |
-42.2% |
Charlotte, NC |
-41.7% |
Miami, FL |
-37.7% |
Denver, CO |
-36.4% |
San Diego, CA |
-34.5% |
Riverside, CA |
-33.8% |
According to Moody's Analytics Chief Economist Mark Zandi, prices will decline nationwide by around 10%, bottoming out in the summer of 2023.
"Home prices continue to face significant pressure in light of surging costs of borrowing," Selma Hepp, deputy chief economist at CoreLogic, told Fortune. "[The] considerable pullback in home buyer demand will continue to weigh home prices down, bringing them closer in line with local incomes."
While problems may persist, many experts say this is not like the 2008 housing crisis
In an article published with CNN, Erik Lundh, principal economist at The Conference Board, said that while the much-feared correction in U.S. home prices is underway, "the drivers behind the recent spike in prices and the current housing market downturn are different from the ones seen in the 2000s." In addition, he said that, "demand from Millennials will probably help keep prices from entering freefall – as was the case in 2008."
Greg McBride, the chief financial analyst for Bankrate, says, "affordability issues and economic worries will depress home buyer demand, and inventory of homes available for sale will remain limited. So it'll continue to be more of a balanced market than tilting one way or the other."
"The housing market will be tepid in 2023, with only lukewarm demand and a limited amount of inventory available for sale," McBride predicts. However, "mortgage rates could pull back meaningfully next year if inflation pressures ease."