Economic predictions for 2023 are uncertain due to the many unknowns influencing the housing market. The Federal Reserve’s ability to bring down inflation and borrowing costs without affecting buyer demand is a factor yet to be seen. While there is some worry, economists and analysts do not expect a recession. Despite this, there is still a concern about high housing prices and rents that may be unaffordable to many.
With the 2023 housing market still up in the air, the issue of affordability continues to be a barrier for many younger buyers, particularly in more expensive markets. This could mean many of them will be stuck renting for the foreseeable future. However, if remote working continues to increase, they may choose to relocate to more cost-effective areas.
In 2023, the housing market will be affected by typical supply, demand, and affordability factors. Provided the nation is able to dodge a recession or experience only a short and shallow one, these are the predictions for the housing market in 2023.
Home prices are projected to decrease.
It is predicted that existing home prices will decrease by 5% nationally in 2023, with potential drops of up to 10% or more in high-priced areas and regions with high home values. In the event of a deeper recession, prices could decrease by 10% or more in areas with a large discrepancy between home prices and local incomes.
Existing Home Sales Will Slow
The low affordability of homes and low mortgage rates will limit the number of transactions; however, those without mortgages may be more likely to sell. Additionally, more homeowners may choose to keep their homes as investments and rent them out rather than accept a lower sale price.
Construction of new single-family homes will decrease.
Homebuilders increased production during the pandemic to meet demand but are now reducing the number of new homes for sale. In 2023, these homes will either be sold to buyers who signed contracts in 2022, converted into rentals, or sold to investors to rent out. Some builders are downsizing and reducing input costs to offer more new homes to first-time buyers. In 2023, the production of new homes to sell and rent will decrease, particularly for single-family homes. However, in areas with unmet demand for affordable homes, construction may still be higher.
Rents will level out, the rise.
Rent increases have been mostly flat in the past few months and are expected to rise slightly in 2023. However, there could be a decrease in rents due to the highest number of multifamily units under construction since the early 1970s likely to hit the market in 2023, as well as new supply from frustrated short-term rental landlords and homeowners entering the rental business.
Building Permits Will Decline
In 2023, residential building permits are expected to drop more than housing starts as developers and builders take a step back to reevaluate risk in the face of uncertainty. Homebuilders will likely use this time to discount unsold homes, divest from unwanted land, and merge with or acquire smaller competitors in preparation for a rebound.
30-year Fixed Mortgage Rates Won’t Fall Substantially
Mortgage rates are expected to stay high in 2023 due to economic uncertainty and inflation, investors demanding higher rates due to the possibility of refinancing when rates drop, and the Federal Reserve’s insistence on forcing inflation down to 2.0%. It is uncertain if this goal will be achievable in 2023.