Housing Market Predictions For 2023: A Correction Is Underway

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Mortgage rates ticked up slightly This Week in Real Estate, but they continue to remain well below their November 2022 peak. While home sales are projected to decline in 2023, housing experts believe prices are expected to remain stable due to more demand for homes than the number of homes available. The National Association of Realtors reports that unsold inventory sits at just 2.7 months’ supply at the current sales pace. The U.S. is short of anywhere between 3.8 million and 5 million homes and counting. According to Freddie Mac, the U.S. was short of 3.8 million homes, as of the last quarter of 2020, up from 2.5 million two years earlier. The National Association of Realtors put that figure at 5.24 million in 2021. Below are a few newsworthy events from the second week of February that influence our business: 

Mortgage Rates Rise on Inflation Concerns. Mortgage rates rose this week after four weeks of declines, as a stronger-than-expected jobs report suggested the Federal Reserve would continue hiking its benchmark lending rate in its battle against inflation. The 30-year fixed-rate mortgage averaged 6.12% in the week ending February 9, up from 6.09% the week before, according to data from Freddie Mac released Thursday. After climbing for most of 2022, mortgage rates have been trending downward since November, as various economic indicators continue to show inflation may have peaked. “Mortgage rates are likely to continue moving up and down in a narrow range for the next few weeks,” said George Ratiu, Realtor.com’s manager of economic research. “Purchase activity that was put on hold last year due to the quick runup in rates is gradually coming back as rates ease and housing demand remains strong, driven by supportive demographics and the ongoing strength in the job market,” said Joel Kan, MBA’s vice president, and deputy chief economist. “With interest rates still running well below the 7% range we saw in the fall, the psychological shock of the 2022 rate jump is wearing off for buyers, leading to a favorable adjustment in expectations,” said Ratiu. Read the full story here.

Home Prices Have Surged 42% in The Last 3 Years. The National Association of REALTORS®’ latest quarterly housing report shows that home price growth is cooling – though that doesn’t mean prices are falling. The national median price for a single-family existing home rose 4% in the fourth quarter of 2022, reaching $378,700. That’s a much slower pace than the 8.6% increase in the previous quarter. Further, only 18% of metro markets posted double-digit price gains in the fourth quarter of 2022, compared to 46% in the previous quarter, NAR data shows. “A slowdown in home prices is underway and welcomed, particularly as the typical home price has risen 42% in the past three years,” says NAR Chief Economist Lawrence Yun. Still, “even with a projected reduction in home sales this year, prices are expected to remain stable in the vast majority of markets due to extremely limited supply. Moreover, there are signs that buyers are returning as mortgage rates decline, even with inventory levels near historic lows.” Read the full story here.

Housing Market Predictions For 2023: When Will Home Prices Become Affordable? As we begin to move through 2023, housing experts maintain a watchful eye on the economy, which continues to be pulled in all directions by high inflation, steep interest rates, ongoing geopolitical uncertainties and recession fears, to name a few. Nevertheless, there are indicators that a housing market correction is underway. For one, mortgage rates are showing signs of ease, with rates now less than double what they were a year ago. “It seems we have already reached the bottom of the low home sales activity,” says Nadia Evangelou, senior economist and director of forecasting for the NAR. “And with mortgage rates stabilizing near 6%, we expect the housing market to turn around in 2023…and rebound in 2024.” Low housing inventory has been a challenge since the 2008 housing crash when the construction of new homes plummeted. It hasn’t fully recovered – and won’t in 2023. Housing supply remaining stuck at near historic lows has propped up demand compared to other downturns, consequently sustaining higher home prices. “I believe that we’re likely to see low inventory continue to vex the housing market throughout 2023,” says Rick Sharga, executive vice president of market intelligence at ATTOM Data. And with 70% of homeowners sitting on a mortgage rate of 4% or less, Sharga says we’re unlikely to see an inundation of homes soon. “The bottom line is that there really isn’t a likely scenario that leads to inventory levels approaching historically normal numbers in 2023, which means that prospective homebuyers are still going to have to work hard to find something to buy,” says Sharga. Due, in part, to the ongoing inventory problem keeping home prices elevated, many economists predict the housing market is more likely to correct itself from the double-digit percentage jumps seen in home prices the past few years rather than crash. Read the full story here.

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