Housing Market Predictions for 2023: When Will Home Prices Fall?

If 2022 was a roller coaster year for the real estate market, 2023 is expected to bring a painful but necessary real estate hangover.

Nationally, a growing number of experts and companies are predicting that US home prices will fall, some expecting mild single-digit declines, while others expect prices to fall in double digits, perhaps as much as more than 20%.

Keep in mind, however, that during the pandemic housing frenzy from early 2020 to late 2022, the average home price in the country increased by more than 41%; therefore, even if the most pessimistic predictions come true, they should not erase the historical price. gains observed in the last two years.

The US housing market is going through what Federal Reserve Chair Jerome Powell has called a “difficult correction” and “reset” as it comes off the tail end of a pandemic frenzy fueled by the “housing bubble”. In its fight against record levels of inflation throughout 2022, the Fed has made a series of aggressive increases in borrowing rates, which has translated into a rise in mortgage rates that has priced in or scared buyers out of the market.

Even with mortgage rates falling slightly in recent weeks, economists expect higher rates to continue to dampen sales through 2023. Some, however, say the market needs this correction to strike a healthier balance between sellers. and buyers – as well as healthier accessibility.

All of this, of course, depends on how fair the local markets are.

In Utah, because of its continued strong job economy, experts predict the state’s housing market will experience some turmoil in 2023, but will come out strong next year.

“Stand strong. 2024 will be better,” Jim Wood, one of Utah’s leading housing experts, told the crowd gathered at the Grand America Hotel in Salt Lake City for the Salt Lake Board of Realtors’ 2023 housing forecast on Friday. fair.

What will happen to Utah’s real estate market?

Wood, the Ivory-Boyer Senior Fellow at the University of Utah’s Kem C. Gardner Policy Institute, detailed his forecast report commissioned by the Salt Lake Board of Realtors, explaining why he still feels bullish for the real estate industry, even if 2023 is not a “year of celebration”.

“2023 will be tough for sales. It’s going to be tough for real estate agents. It’s going to be tough for home builders,” Wood said. He expects buyers and sellers to “stand back and wait for the dust to settle,” many of them stuck in the low 3% mortgage rates that helped send the country’s housing market into a frenzy in 2020 and 2021.

Reluctant sellers and low-price buyers, Wood said, will mean 2023 will mark a year of declining home sales. After seven years of sales averaging 18,000 homes in Salt Lake County, the high prices of 2023 will mean sales will not reach 13,000, he predicted, and will likely range between 11,000 and 12,000.

Will Utah home prices fall?

The west was ground zero for the pandemic housing frenzy and was also one of the first areas to see property prices being reduced as the market corrects itself.

In Utah, home prices have begun to decline, below their peak in May, when the median home sales price in Salt Lake County was $565,600. After the next seven months, the average price dropped 14% to $485,829, erasing monthly percentage increases until it “finally turned negative 2.1% in December,” Wood wrote in his report.

How far will they fall? Utah housing experts disagree on how far home prices will fall, though they remain confident that 2023 will not bring a full-on meltdown like 2007 did, and that Utah’s strong jobs economy will still largely insulate it from any impacts. downsides of a recession.

Wood takes a more optimistic view.

Utah will see small “year-over-year price declines in Q1 and Q2 of 2023, but prices will start to stabilize in Q3 and Q4,” he said.

Wood’s research colleague at the Kem C. Gardner Institute, Dejan Eskic, is more pessimistic, predicting that Utah home prices will fall 9% year-over-year in 2023. From peak to bottom, he expects prices to fall by a percentage somewhere in the mid to low teens, depending on interest rates.

As for interest rates, Wood noted that forecasts range widely from 5% to 9%, but he personally expects rates to jump between 6.5% and 7.5% in 2023.

Additionally, Wood and Eskic predict that Utah’s estimated shortage of 31,000 housing units will continue to keep home prices high even if the state sees some price declines, so they expect Utah’s housing affordability crisis to remain a Persistent problem that is costing more than 75% of Utahns from purchasing a mid-state price home.

Is there a real estate bubble?

Powell, the chairman of the Fed, has indeed called this a “housing bubble” a pandemic frenzy, but he and other experts have always said it is not like 2007 and 2008.

In his report for Utah, Wood wrote that the recent price spike is “very unlikely to represent a housing bubble,” although he added, “We don’t know there’s a bubble until it bursts.” He cited Alan Greenspan, economist and former chairman of the Federal Reserve, who defined a housing bubble as a prolonged period of falling house prices.

“Such a decline is extremely unlikely in Utah” in 2023 and 2024, Wood wrote.

Wood also said that “2023 is not 2008”, when it comes to housing prices, noting that “very few desperate, unemployed homeowners face foreclosure … They can sit back and wait for the dust to settle”.

As a result, Wood predicted that the price declines that have been falling since May will level off in the third quarter of 2023, and the annual average selling price for 2023 will likely “be within a few percentage points of one way or another of 2022.”

“Worst case,” added Wood, “prices are down about 5%; best-case scenario, prices equal to 2022.”

Will US home prices fall in 2023?

Economists, consulting firms and other experts have mixed predictions when it comes to the degree to which house prices will contract.

“Price forecasts for this year (are) somewhat uncertain,” Lawrence Yun, chief economist for the National Association of Realtors, told the Salt Lake Council of Realtors crowd on Friday.

Yun said the range of price declines will likely depend on the region. High cost areas like San Francisco, he said, will see a 15% price decline. The Midwest, he said, is likely to see “minimal price increases.”

Cities with strong job growth, such as Boise and Salt Lake City, are harder to predict, he said, as accessibility issues keep first-time buyers from entering the market.

“So it’s really hard to say, but I think it’s going to be a minus minus or minus plus,” Yun said. “Or if they are slightly more significant drops, a 10% drop, take advantage of them because 10 years from now you will see much better conditions.”

Overall, Yun predicted that US home sales would decline by 6.8% in 2023 compared to 2022, and he expects home prices to rise by just 0.3%, or essentially flat.

Here’s what other organizations and companies are predicting:

• Realtor.com predicts that home prices will still rise 5.4% in 2023, while mortgage rates will average 7.4%.
• Freddie Mac predicts that US home prices will fall just 0.2%, with an average mortgage rate of 6.4%.
• Redfin predicts the median home sales price in the US will drop 4% in 2023
• Capital Economics predicts that 2023 will be the “worst sales year since 2011” and expects home prices to decline by 6% this year, which would result in a maximum drop of around 8% to 10%.
• Moody’s Analytics expects a 10% drop in US home prices — or a 15% to 20% drop if a recession strikes, Fortune reported.
• John Burns Real Estate Consulting now expects US home prices to decline by 20% to 22%, Fortune reported, based on the assumption that mortgage rates remain close to 6% throughout the year.

Housing forecasts for 2023: ‘Terrible consolidation’

Glenn Kelman, CEO of Redfin, predicted on a Jan. 4 episode of Barron’s Live that the real estate market, particularly when it comes to real estate agents, will experience a painful constriction in 2023.

“There will be terrible consolidation,” he said, although he added that he believes “it will be good for the industry”.

In 2020 and 2021, when Congress was writing the COVID-19 stimulus checks, Kelman said that “real estate diversified in an interesting way” because those stimulus checks “allowed people to experiment with real estate.”

But now, those days of wild buyer demand and a frenzy of seller activity are over, and real estate agents outnumber active listings.

In 2022, Redfin itself has gone through two rounds of layoffs. Compass announced a third round of layoffs on Thursday, according to The Real Deal.

“So hopefully the industry is close to the right size and things can pick up from here,” Kelman said. “I don’t think that has happened yet.”

Buyer’s best balance

In its December 2022 monthly report, Realtor.com said its monthly real estate data showed a housing market that continues to cool, with the number of homes for sale rising 54.7% compared to the same period last year.

Rising inventory, coupled with listing price growth falling below 10% for the first time in a year, “offers some bright spots for homebuyers,” Realtor.com said in its report, “as they may have more options and more time to make a purchase. decision about buying a home.

However, “prices are still significantly higher and homes are selling faster compared to pre-pandemic 2019 levels,” noted Daniel Hale, chief economist at Realtor.com.

“While demand has eased from last year, pushing home price growth into the single digits for the first time in 12 months, the moderation in home price growth may encourage more buyers to return to the market in the coming months and also could be welcome news for sellers looking to sell and buy at the same time.”