Fig. 1: Midyear Forecast Update - Infographic
The national housing and economic forecast for 2023 offers insight into the current real estate landscape. Despite the easing of home prices, costs remain high, impacting affordability. Let's take a closer look at the mid-year update.
Realtor.com Forecast for Key Housing Indicators
Housing Indicator
Realtor.com 2023 Forecast REVISED
Realtor.com 2023 Forecast (Nov. 2022)
2022 Historical Data
- Mortgage Rates: Average 6.4% throughout the year, 6.1% by end of year. Average 7.4% throughout the year, 7.1% by end of year. Average 5.3%, 6.7% at end of year.
- Existing Home Median Sales Price Appreciation: -0.6%. +5.4%. +10.2%.
- Existing Home Sales: Down 15.8%. 4.2 million. -14.1%. 4.5 million. -17.8%. 5.0 million.
- Existing Home For-Sale Inventory: Down 5%. +22.8%.
- Single-Family Home Housing Starts: -19.6%. 0.8 million. -5.4%. 0.9 million. -10.6%. 1.0 million.
- Homeownership Rate: 65.7%. 65.7%. 65.8%.
- Rent Change: -0.9%. +6.3%. +10.9%.
Economic Landscape
Inflation Recedes Very Gradually
While inflation has moderated, it remains above the Fed's 2% target, causing uncertainty in monetary policy. The PCE price index and the Consumer Price Index both show inflation rates more than double the Fed's target. Although the Fed acknowledges progress, achieving the desired outcome still requires further action.
Monetary Policy Makers Anticipate the End of Tightening
The FOMC members have adjusted their expectations for the policy rate, signaling the eventual end of tightening. The June 2023 Fed meeting projected a policy rate increase, preparing investors for future rate hikes. Financial markets are adjusting to the prospect of higher rates, leading to potential upward pressure on interest rates, including mortgages.
But the Economy, Especially the Labor Market, Continues to Grow
While economic growth is expected to slow, it is still showing signs of progress. The labor market has exceeded expectations, with strong job growth and a low unemployment rate. However, wage growth has not kept up with inflation, impacting household purchasing power. Without increased income or reduced living costs, households may deplete savings accumulated during the pandemic.
2023 Housing Trends
Annual Home Sales Retrench
Affordability challenges and limited buying power have led to a decline in home sales. The forecast for 2023 predicts a 15.8% decrease in home sales compared to the previous year. Inventory constraints have also contributed to the decline, as potential sellers prefer to hold onto their homes due to low-rate mortgages.
Mortgage Lock-In Causes Inventory Gains to Stall
The lack of available homes for sale is another factor dampening home sales. Momentum in inventory growth has slowed, and the forecast now predicts a small decline of 5% rather than an expected gain. Many potential sellers feel locked in by their low-rate mortgages, further restricting the supply of homes.
Home Prices Do Not Hit a New 2023 High
Contrary to expectations, home prices have not seen significant declines in 2023. While there has been a national decline, it is primarily driven by the Western region. In other areas, prices have either remained steady or continued to rise. However, the late 2022 weakness in home prices and a more moderate increase this year may lead to price declines in the summer months.
But Home Purchase Costs Remain Elevated
Despite some declines in home prices, overall costs remain high due to mortgage rates. Monthly payments are still higher compared to the previous year, affecting affordability. The prevailing mortgage rate is expected to result in monthly payments that are 10.5% higher in 2023 compared to 2022.
Some Households Get Creative to Buy
To navigate the challenging housing market, households have become more creative. As competition has eased in some markets, down payments have declined, opening opportunities for buyers with limited funds. Buyers are also searching beyond their current market for affordable options. The Northeast and Western regions have seen increased out-of-market shopping.
While Many Others Continue To Rent in 2023
High housing prices and elevated mortgage rates have deterred renters from considering homeownership. Even among those still planning to buy, many have delayed their home purchase and opted to remain in the rental market. Rental demand is expected to remain strong in the latter half of 2023. However, existing tenants may choose to renew their leases to save on costs, potentially reducing competition in the rental market.
And a Surge in Multi-family Construction Gives Renters More Options
The ongoing construction of multi-family units is increasing the supply of rental homes. This surge in supply has led to a higher vacancy rate, alleviating competition and potentially slowing rent growth. However, property owners may face challenges in filling vacancies. As a result, independent landlords are less likely to raise rents for lease renewals.
In conclusion, the mid-year update of the national housing and economic forecast provides valuable insights into the current state of the real estate market. While home prices have shown some signs of decline, affordability remains a significant challenge due to elevated costs and mortgage rates. The rental market continues to be a popular choice for many households, with increased rental options giving renters more flexibility. Overall, the 2023 housing landscape presents both challenges and opportunities for buyers and renters alike.
