The housing market in 2023 is anticipated to be a challenging one for homeowners, sellers, buyers, and renters. While there will be a slowdown in home sales transactions and a moderation in home price growth, costs will remain high, making affordability a significant challenge. The market will not be a buyer's bonanza, but rather a "nobody's-market," where neither buyers nor sellers have a significant advantage. In order to succeed in this competitive landscape, consumers will need up-to-date information, creativity, flexibility, and a healthy dose of patience.
A Closer Look at the 2023 Housing Market Forecast
According to Realtor.com®'s 2023 forecast for key housing indicators, here are the expectations for the coming year:
Mortgage Rates
- Forecast: 7.4% (average)
- Year-end 2022: 7.1%
- Year-end 2021: 5.5%
- Historical average (2013-2019): 4.0%
Existing Home Median Price Appreciation (Year-over-Year)
- Forecast: +5.4%
- 2022: +10.2%
- 2021: +17.0%
- 2013-2019 historical average: +6.4%
Existing Home Sales (Year-over-Year | Annual Total)
- Forecast: -14.1%
- 2022: 4.53 million
- 2021: 5.28 million
- 2013-2019 historical average: 5.27 million
Existing Home For-Sale Inventory (Year-over-Year)
- Forecast: +22.8%
- 2022: +4.0%
- 2021: -19.4%
- 2013-2019 historical average: -3.5%
Single-Family Home Housing Starts (Year-over-Year | Annual)
- Forecast: -5.4%
- 2022: 0.9 million
- 2021: 1.0 million
- 2013-2019 historical average: 0.8 million
Homeownership Rate
- Forecast: 65.7%
- 2022: 65.8%
- 2021: 65.5%
- 2013-2019 historical average: 64.2%
Rent Growth
- Forecast: +6.3%
- 2022: +7.7%
- 2021: +10.0%
- 2013-2019 historical average: +5.0%
Home Sales Retrench Further
The annual tally for existing home sales hit a milestone in 2013, surpassing 5 million after five years below that threshold. In the years that followed, home sales remained relatively stable. However, the housing market activity was disrupted by the pandemic, resulting in a surge in sales in 2020. In 2022, the anticipation of tighter monetary policy and rising mortgage rates led to a decline in home sales. This trend is expected to continue in 2023, with a projected decline of 14.1% in existing home sales.
Growth Softens, but Prices Continue to Advance
The increase in home prices over the past decade has contributed to the record-high real estate wealth. However, with higher mortgage rates and decreased homebuyer purchasing power, home price growth is expected to slow in 2023 to 5.4%. The monthly cost of financing a typical for-sale home is projected to increase by nearly 28% compared to 2022.
For-Sale Inventory is Expected to Increase
The total inventory of homes for sale is expected to grow in 2023, providing more options for homebuyers. With slower market conditions and decreased buyer demand, inventory levels are forecasted to increase by 22.8%. However, the level of inventory is expected to fall short of the 2019 average by approximately 15%.
Rent Growth is Expected to Continue
Rent growth, which moderated in the late summer of 2022, is anticipated to continue, albeit at a single-digit pace. Limited supply and excess demand in the rental market will keep upward pressure on rent growth. The national rent growth forecast for the next 12 months is 6.3%.
Affordability Makes or Breaks Home Searching in 2023
Affordability will be a crucial factor in the 2023 housing market. Incomes, mortgage rates, and home prices will determine housing affordability. First-time homebuyers, who already face significant obstacles, may find it particularly challenging to enter the market. It is essential for homebuyers to be prepared, use online calculators to determine affordability, and consider cross-market shopping to find more affordable options.
Local Market Predictions
While the national housing market trends provide valuable insights, it is equally important to consider local market predictions. Each real estate market is unique, and understanding the dynamics of your local market is crucial for both buyers and sellers.
In conclusion, the 2023 housing market will pose several challenges for homebuyers, sellers, and renters. Affordability will be a key consideration, and creativity, flexibility, and patience will be essential for success in this competitive environment. By staying informed, exploring all options, and being prepared, consumers can navigate the housing market and make the best decisions for their needs.
Note: The market predictions provided are based on the Realtor.com forecast and may vary depending on specific regional factors.