What To Expect in 2023

As the year comes to a close, many people are talking about what to expect in the housing market in 2023. Since the beginning of the pandemic, so much has changed so quickly. As a result, we are bombarded with contradicting predictions filling the media and only adding to all of our confusion. So who is telling the truth and who is stretching the truth? And what should we expect in 2023?

Finding a Balance

Home prices have seen some drastic changes throughout the past couple of years. Supply has remained limited, but demand has skyrocketed, leaving an overall jump in home prices that has surpassed income growth. Many people who want to buy are suddenly feeling priced out. Now the market has to balance back out, meaning home prices need to decrease to match income growth. In markets all over the country, home prices have already started to drop, and experts predict they will continue to do so through most of next year. [1]

But not to worry! This decrease is only temporary. As prices begin to cool, more people will be able to afford to buy a home and demand will grow again. A recent report from Wells Fargo states, “low supply and strong demand will limit the extent home prices depreciate. If our forecast for Fed rate cuts is realized, mortgage rates are likely to fall slightly, which will spur an improvement in sales activity and reignite home price appreciation heading into 2024” [1]. Although prices will likely continue to drop through the majority of 2023, most experts expect them to begin to appreciate again by 2024. 

We have also seen major changes in mortgage rates recently. In the past year alone, they have increased faster and more dramatically than we have ever seen before in a single year [2]. The good news however, is a return to more normal rates is just around the corner. According to financial experts, the likelihood of a recession within the next year is increasing each month [3]. Historically, a recession means a drop in mortgage rates [2]. This means that although inflation is still causing upward pressure on these rates that will continue through the end of the year, as we head into 2023 that is something we can (thankfully!) expect to change.

This is NOT 2008!

As home prices start to drop and talk of recession heats up [3], many people have started to worry we are at risk of another housing market crash like the one in 2008. We will likely see a recession and cooling mortgage rates within the next year, we aren’t going to see a crash like before, and here’s why:

  1. During the financial crisis of 2008, home prices saw a 5 year depreciation before finally recovering [4]. Right now, experts are only expecting to see some depreciation next year and then a return to normal appreciation by 2024.
  2. The environment around foreclosures is completely different than it was before the crisis. The lending standards are much stricter than they used to be, making foreclosures increasingly less likely. As a nation, we have seen a steady decrease in the number of mortgages ending in foreclosures since 2010, and are now at less than 1% [5].
  3. Homeowners are still seeing steady increases in equity which has promoted stability in the market despite recent changes and outside pressure from inflation and other factors [6]. Of those homeowners facing foreclosure, 91% have at least some equity built up in their home, meaning they would still make money if they sold today.

The Takeaway

The housing market will see many ups and downs through the next year as mortgage rates and home prices start to fall. Despite the increasing talk of a market crash, these declines are very different from what we saw in 2008. Instead of leading to another financial crisis, the changes we see in 2023 are a result of the market working to return to equilibrium. Although there are many conflicting predictions of the extent of these changes, most experts agree that by 2024 home prices and mortgage rates will have returned to more normal levels.

 

Sources

[1]https://wellsfargo.bluematrix.com/links2/html/429eb828-b17e-4e47-8856-4ff59f9d3d1a

[2]http://www.freddiemac.com/pmms/

[3]https://www.wsj.com/articles/economic-forecasting-survey-archive-11617814998

[4]http://www.zelmanandassociates.com/

[5]https://www.attomdata.com/news/market-trends/foreclosures/attom-year-end-2021-u-s-foreclosure-market-report/

[6]https://www.corelogic.com/intelligence/homeowner-equity-insights/

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