An Unprecedented Two Years
Before we get to what the experts predict for the 2023 real estate market, it’s best to first understand what’s happened over the last couple of years and how we arrived at today’s market which is dominated by high mortgage rates.
Amidst the global, COVID-19 pandemic in 2020, the US Federal Reserve lowered interest rates in an effort to stimulate the economy and ease the financial burden for millions of Americans facing unemployment and/or reduced wages. The rates were unprecedented.
Mortgage rates also came down significantly, which gave home shoppers massive buying power and homeowners the ability to refinance their mortgages at a much lower rate. This led to a flood of buyers and fewer homes on the market at a time when inventory was already historically low. With increased demand and not enough supply, buyer competition was off the charts and home prices skyrocketed.
Of course, what goes up must come down. So, without getting too technical, the Fed introduced higher interest rates in 2022 to curb inflation as well as slow housing price appreciation.
However, there have been more and sharper increases in mortgage rates than anyone predicted, causing buyer demand and the entire market to shift considerably. (Yet nowhere close to the annual average of 16.63% back in 1981).
Still, inventory remains low. Nearly 18 million homeowners refinanced into a lower mortgage rate over the last two years and have gained record amounts of equity—not a whole lot of incentive to sell anytime soon.
This lack of homes for sale is now keeping prices from decreasing by more than a few percentage points.
So, what are the experts predicting for 2023? Let’s take a look.
Real Estate Market Predictions for 2023
While the consensus is that the market will remain the same and improve at some point in 2023, there’s just no going back to the rock-bottom rates of the last two years. That ship has sailed.
Most experts do predict that the mortgage rates will remain high, reducing demand and forcing many sellers to accept a lower offer than what their neighbor received a year ago. So, if you plan to sell, your agent’s pricing strategy will be based on comparable homes sold during the second half of 2022 and beyond, not prior. If rates do ease, home prices will likely increase albeit slightly.
Now, here’s a quick rundown of what the experts predict for real estate in 2023:
Lawrence Yun, Chief Economist for the National Association of Realtors (NAR)
In 2023, national volume of home sales is likely to drop by 7% while the median home price will increase by up to 1% depending on the individual market. He predicts housing will see a big rebound in 2024, with a 10% rise in home sales and a 5% increase in the median prices.
Our Takeaway: There will be less competition amongst buyers and better home pricing in 2023 while waiting yet another year for rates to drop will likely mean getting into bidding wars, especially if inventory remains low.
Danielle Hale, Chief Economist for Realtor.com®
There will likely be ups and downs throughout 2023, including months showing year-over-year declines and overall price growth half of what it was in 2022. However, a shortage of homes for sale will ultimately increase prices by 5.4%.
Our Takeaway: Compared to Yun, this forecast is more positive for sellers yet not entirely daunting for buyers who have to take mortgage rates into consideration. This could lead to greater balance for both sides and a more balanced market.
Rick Sharga, executive vice president of Market Intelligence for ATTOM Data Solutions
Mortgage rates will peak early in 2023 and drop back into the 6% to 5.25% range if the Fed is able to get inflation under control and begin pulling back on aggressive increases.
Our Takeaway: With home prices dropping during the winter months and higher conforming loan limits in 2023 (info below), the real estate market will be very busy by spring if rates ease up.
Mike Fratantoni, Chief Economist and SVP for the Mortgage Bankers Association
“The slowdown in housing activity and higher mortgage rates will cut the rate of home-price growth. MBA expects national home prices will be roughly flat in 2023 and 2024, allowing household incomes some much-needed time to catch up to elevated property values.”
Our Takeaway: Relief is coming and prices will slow and/or level off. Getting into the market sooner rather than later also means greater long-term equity gains once more buyers return to the market and prices regain momentum.
Fannie Mae's October 2022 Housing Forecast
Mortgage rates may fall slightly to 6.6% in Q1 and continue to steadily drop throughout the year. Home prices will also start to come down but only by 1.5% nationally, though that figure can vary greatly by location. (FYI, Goldman Sachs predicts that home prices may decline by 5% to 10%.)
Our Takeaway: Predictions for the 2023 real estate market are varied. The best bit of wisdom we can give you is to buy when you find a house that meets your needs and that you can afford.
Higher Rates vs. Competitive Market
It’s understandable that higher interest rates today and throughout 2023 may put a damper on affordability. However, this doesn’t necessarily mean that you’ll be paying more.
- Just six months ago, many buyers could not “win” bidding wars because the competition was so fierce. On average, homes were going for 25% or more over the asking price.
- In addition, buyers often waived inspections and other protections that left them paying for costly repairs on homes they bought for over asking and with all their cash on hand.
- Some also paid cash for an appraisal gap and put down non-refundable earnest money which made it costly to get out of a contract if serious issues came up along the way.
Conforming Loan Limits Increasing in 2023
Another development is the new conforming loan limits for 2023. The baseline loan limit of $647,200 will increase to $726,200 nationwide. More specifically, limits in Denver and most surrounding areas will increase to $787,750 while Boulder County will jump to $856,750.
This will make it easier to buy a home with a conventional loan versus a jumbo loan which can be challenging to qualify for due to stringent requirements: excellent credit, low debt-to-income ratio, up to 12 months of cash reserves, a high income and a large down payment.
Always Work with a Professional
No matter what happens in 2023, your biggest asset is an experienced real estate professional who will look out for your best interests. Our versed and knowledgeable team of agents here at PorchLight would love to assist you. We can provide you with market expertise whether you’re buying or selling. Keen negotiations to attractive pricing strategies, we provide a true full-service experience along with the guidance and connections you need to achieve your goals.