It's been a tumultuous year in the housing market. From the buying frenzy in early 2022 to mortgage rates doubling, many Americans are wondering what the 2023 housing market has in store.
Home affordability has reached the point where consumers need to earn over $100,000 to afford a typical home. As a result, many are wondering if home prices will fall in 2023, if a buyers market is coming, or if they should just give up and move abroad instead.
Although no one knows exactly what the next year will bring, we rounded up the experts to weigh in. Here are their housing market predictions for 2023.
1. Home sales will plummet
About 4.3 million homes will be sold in 2023, according to Redfin’s 2023 Housing Market Predictions. “That’s fewer home sales than any year since 2011, when the U.S. was reeling from the subprime mortgage crisis,” the report states.
The reason? Many people can't afford to buy with mortgage rates hovering around 7%. And many homeowners holding lower rates don't want to sell. The result, according to Redfin, will be a further decline in new listings in 2023. However, this is just one possible scenario, and inflation also will affect the number of homes sold.
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2. Mortgage interest rates will drop below 6%
The most recent Mortgage Finance Forecast from the Mortgage Bankers Association (MBA) predicts a 5.4% mortgage interest rate by the end of 2023. Redfin predicts that by the end of 2023, mortgage rates will be at 5.8%.
And Lawrence Yun, chief economist for the National Association of Realtors (NAR), says a 6% rate will be available but only “to those willing to go with a five-year ARM.”
Of course, these are just estimates. Other experts and analysts don’t see rates coming in quite that low. For example, Zillow Senior Economist Jeff Tucker predicts mortgage rates will stay at current levels.
3. The median home price will flatline or fall
Despite the predicted decline in home sales in 2023, Lawrence Yun expects home prices to hold steady in 2023. In fact, he predicts they will rise a slight 0.3% to $385,00.
However, other economists maintain a gloomier outlook. Redfin, for example, expects home prices to fall by 4% over the next year. Moreover, Moody’s Analytics expects that many of the most “significantly overvalued” markets will fall by as much as 15% to 20%.
4. There won’t be a lot of foreclosures
With current market conditions, experts don't expect any significant in foreclosures.
Rick Sharga, executive vice president of market intelligence at ATTOM Data, explains: “Foreclosure starts were up roughly 1% in the third quarter from last quarter, and 167% from a year ago, coming within range of what they were pre-pandemic.” This is largely due to the end of the Covid-19 foreclosure moratorium, which happened in September 2021.
However, Sharga points out that foreclosure activity remains well below pre-pandemic levels and doesn’t expect it to return to normal until mid-2023. In addition, Sharga explains that there won’t be many more foreclosures because many homeowners have significant home equity.
Another factor is that the job market remains strong for now, lessening the likelihood of foreclosures from mass unemployment.
5. Average rent prices will increase
According to the Bureau of Labor Statistics, rents rose 12.2% for new tenants and 3.5% for existing tenants in 2022. Moreover, HouseCanary reported that single-family homes hit an average rent of $2,495 a month in the first half of the year, representing a 13.4% increase over the same period in 2021.
Realtor.com’s National Housing Forecast predicts rental prices will continue to rise in 2023 by 6.3% as renters compete for a limited number of vacancies. In fact, the report reveals that the five-month vacancy rate has stayed below 6% for the first time since 1985, largely driven by high home prices and market uncertainty.
According to Realtor.com, “U.S. renters will continue to face challenges from limited supply and excess demand in the coming year that will keep upward pressure on rent growth.”
Source: Bureau of Labor Statistics
6. More homeowners will become first-time landlords
As a result of these high rents, more people might keep their homes and rent them out if they have to move to a new location, says Robert Taylor, The Real Estate Solutions Guy.
“Homeowners who are forced to move due to jobs or life events will lament losing historically low-interest rate mortgages and will add their homes to the rental market,” he says.
Not all homeowners will be eligible to carry two mortgages. Still, if they can find renters quickly (a likely scenario in 2023), they may be able to use their first home as a cash-generating real estate investment.
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7. Renovations will focus on outdoor spaces and energy-efficient retrofits
The Leading Indicator of Remodeling Activity (LIRA) shows, “Homeowner remodeling and repair spending will shrink from 16.1% in 2022 to 6.5% by the third quarter of 2023.”
Most homeowners have equity to complete home remodels, but the prices for materials and labor are still extremely high.
Still, many homeowners holding low mortgage rates are not interested in moving and might be in their homes longer than expected. Kristin Swenson of Yardzen, an online design platform, says homeowners will be “asking more of their indoor and outdoor spaces as they look ahead to several years at the same address.”
Swensen recommends homeowners invest in curb appeal and outdoor spaces to help their homes stand out when it is time for them to sell.
Source: Harvard Joint Center for Housing Studies
8. Joint purchases will gain popularity
Matt Teifke, founder and CEO of Teifke Real Estate, expects joint home purchases to become a more popular option in 2023. In addition, because of rising home prices, friends and family members might consider cohabitating to become homeowners without having the full burden of homeownership costs.
A 2022 joint study between Realtor.com and HarrisX found that "nearly one third (31%) of all Americans and 41% of 18- to 34-year-olds have bought a primary residence with someone they aren’t married to.” Co-buyers were romantic partners (15%), siblings or other relatives (4%), and even friends (4%).
It’s important to note that purchasing a home with someone else is a significant decision, and consumers should weigh the pros and cons.
9. People will move to less expensive areas like the Midwest
Zillow predicts the lower housing prices in much of the Midwest “will allow first-time buyers to take the plunge.” The Midwest stands out, especially with the current home inventory crisis. Zillow reports, “Having available houses to choose from is another key component of a healthy market, and the Midwest stands out – inventory isn’t in a massive hole.”
Research from the National Association of Realtors shows Atlanta will be the top market in 2023. A close second will be Raleigh, North Carolina.
10. More tenants will Airbnb their apartments
According to Alex Byder, the founder of estate investment company BD Homebuyer, “Airbnb is implementing a new feature that will let tenants rent out their rented apartments when they're out of town.” The new Airbnb-friendly rental platform, rolled out last month, helps renters find apartment buildings that are Airbnb-friendly. Byder says, “This will be a huge factor to help subsidize the cost of rent in many areas.”
11. A trend toward greener homes
Because of recent laws like the Inflation Reduction Act, commercial and residential builders will be more likely to incorporate green technology. Although many homes have trended this way for years, this new law means we could see an even bigger surge of energy-efficient homes in 2023.
The 2022 Realtors and Sustainability Report showed “half of agents and brokers surveyed said they helped a client buy or sell a property with green features during the past 12 months,” up from 32% in 2021. Interestingly, the report also showed 35% of respondents said their MLS had a green data field, allowing homeowners to look for houses with these features.
12. Increase in commercial to residential conversions
David Bitton, the co-founder and CMO of DoorLoop, says, “The demand for commercial spaces has drastically declined as companies adapt to flexible work.” This has caused many companies to reconsider their commercial spaces and how much they need. Bitton says this might lead to commercial to residential conversions, especially if “zoning laws are adjusted, and financial incentives are offered to developers who will make the renovations to accommodate this.”
Coldwell Banker Richard Ellis (CBRE), the world’s largest commercial real estate services and investment firm, shared an analysis that showed 36 conversions completed on average in the U.S. from 2016 to 2021. In 2022, 42 have been completed, and 21 are expected to be completed by the end of the year.
Still, they said, current conversions amount to roughly 2% of the total U.S. office inventory. They concluded, “Conversions are a niche trend that will resonate more on the local level than the national level.”
How to prepare for 2023
Consumers should remember that the above are predictions, but real estate generally can be unpredictable. Still, there are many ways to prepare if you’re interested in buying, selling, or investing in real estate in 2023.
Boyd Rudy, an associate broker at Dwellings Michigan, offered the following suggestions:
- Buyers: Start saving early and ensure your credit is in good shape.
- Sellers: Consider whether you’re willing to accept less than your asking price or make other concessions.
- Investors: Diversify your portfolios and monitor trends.
Ultimately, Boyd said, “by being proactive and planning ahead, everyone can weather whatever storms may come in 2023 and beyond.”