Real Estate Predictions for 2023

This is a summary/synopsis of an article by Matthew Gardner, Windermere Real Estate Chief Ecomomist, for Inman dated 11/28/22.

1. There is no housing bubble. Home prices are expected to decline as more of a correction of recent pandemic-induced demand coupled with historically low interest rates.

2. Mortgage rates will drop. Rates shot up this year as a reaction to the Federal Reserve's efforts to control inflation. It's expected the Fed will pull back their hikes to reduce the likelihood of a recession which should stabilize and even begin to reduce mortgage rates back to the 5% range by next fall.

3. Housing inventory isn't likely to increase much. Many homeowners currently have very low mortgage rates and simply do not want to trade those in for higher rates on the next home.

4. Not a buyer's market but a balanced one. Because supply will likely remain low, we probably aren't going to see a true buyer's market develop unless we see a both sharp increase in listings and a sharp decline in purchases.

5. Sellers have to be more realistic. Listing prices are probably going to scale back because the higher interest rates means buyers just can't pay what they were paying in recent years.

6. People may be returning to work at the office. Many buyers have been waiting to see how much time they will be required to be at the office before making a home purchase. As businesses make this more clear, employees can begin to make more permanent housing decisions.

7. New construction unlikely to increase. Builders will start seeing resolution to supply chain issues, but costs to build are still high. Balancing those high costs to build with what buyers can afford to pay will keep builders cautious.

8. Not all markets are the same. Markets where home price growth rose the fastest in recent years will likely see the sharpest declines, but even those markets should stabilize by the end of 2023.

9. Affordability will continue to be a major issue. Even with anticipated slight price drops, the higher interest rates will keep home ownership out of reach for many renters. Add that to their increased rents, and they are probably saving less than before towards buying.

10. Government will take housing action. More municipalities will adjust land use policies, provide tax incentives to developers, etc. to help combat the housing shortage and make home ownership more affordable.

Here are some graphs from the Fannie Mae Housing Forecast from November, 2022 that support these predictions: