What a difference a few months can make in the housing market.
Late last year when Realtor.com® issued its housing forecast for 2023, our economics team believed the number of homes for sale would jump substantially, home prices would continue climbing, and rising rents would continue to bedevil tenants across the country.
Clearly, not all of our predictions came true. That’s why Realtor.com has revised its forecast to reflect some new realities in the housing market that are having an outsized impact on buyers struggling with higher costs, sellers reluctant to give up their rock-bottom mortgage rates, and shell-shocked tenants who endured years of landlords jacking up their rents.
“It was a good time to check in and update our forecast,” says Realtor.com Chief Economist Danielle Hale. “We made a bold call that home prices wouldn’t go down in 2023, and with the latest data, we’re revising that projection.”
The big takeaway for the second half of the year is that, while home prices, mortgage interest rates, and rents will come down a little bit, most folks won’t see much—if any—relief. There won’t be any big price drops reminiscent of the Great Recession.
In fact, the average monthly mortgage payment* is about 15% more per month than it was a year ago.
“Home costs are still going to be higher for buyers in 2023 because home price declines are very mild and not universal,” says Hale. “Some areas are still seeing home prices going up and mortgage rates are still very high.”
For-sale home and rental prices are expected to dip
In a long-awaited, 180-degree turn for the housing market, home prices are expected to finally come down a little nationally.
Realtor.com is anticipating median home list prices will dip 0.6% in 2023 compared with 2022. Originally, we had anticipated that prices would rise 5.4%. (This is only for existing homes and doesn’t include new construction.)
Even a small decrease is a departure from years of steadily climbing prices. Last year, home prices shot up 10.2% year over year.
The declines are at least partly due to prices having fallen in the nation’s priciest real estate markets, such as in the West. Buyers simply couldn’t afford those price tags plus high mortgage rates, so something had to give. In the more affordable Midwest and Northeast, prices have steadied or even risen.
“We’re seeing more divergence between how local housing markets are doing,” says Hale. “In areas that are more affordable, we’re seeing more buyer interest, more sales, and more competition keeping prices high.”
Renters are also expected to get a bit of a reprieve. Monthly rental prices are anticipated to dip 0.9%, some welcome news for renters who have been hitting their financial limits after years of large rent hikes and high inflation squeezing their budgets, In addition, more apartments are coming online, easing the shortage of rental housing. Initially, Realtor.com had projected rents would rise 6.3% in 2023.
“Asking rents are expected to fall. [But] whether any particular tenant is going to find rents are lower depends on when they last moved,” says Hale. “Renters who stayed put and didn’t contend with the higher rents of the last few years might find their rent has some catch-up to do.”
Lower mortgage rates will help stimulate the housing market
Prices aren’t the only things headed south. Mortgage interest rates are expected to decrease to 6.1% by year’s end. Realtor.com had expected they would be around 7.1% by the end of 2023.
The U.S. Federal Reserve is expected to moderate the rate hikes that have caused mortgage rates to soar and, in turn, bludgeoned the housing market. Now that inflation is finally slowing, that’s taken some of the pressure off of the Fed to raise its rates.
The Fed has indicated there might be two more rate increases this year. Once the Fed’s rate increases are done, mortgage rates are poised to fall a little.
“It means affordability will start to improve, but not drastically,” says Hale.
Fewer homes are for sale
The Realtor.com economics team had predicted that the number of homes on the market would surge as homes took longer to sell to fewer buyers. However, that didn’t work out as expected.
Homeowners who scored ultralow mortgage rates over the past few years have been loath to list their homes and give up those rates. So they’ve stayed put, keeping inventory low.
“The lock-in effect has been stronger than we anticipated,” says Hale. “That’s going to improve gradually over time. The longer existing homeowners are in their homes, even if they have a low mortgage rate, the more likely it is their current home won’t meet their needs. They’ll also have more equity that will cushion the blow” of buying a new home with a higher mortgage rate.
Builders aren’t expected to put up enough new homes to get the nation out of its housing shortage either. Realtor.com foresees the number of new housing starts plummeting 19.6% this year compared with last as builders contend with fewer buyers and an environment where it’s harder to get credit to start new projects.
Overall, Realtor.com foresees the number of homes for sale dropping 5% this year.
That lack of inventory is also holding sales back. Even buyers who can afford today’s prices and mortgage rates are struggling to find something for sale.
Home sales are anticipated to fall 15.8% this year to about 4.2 million sales. That would be the fewest number of homes sold since 2012. It’s also more dire than early predictions of a 14.1% decline in sales.
“We have seen the bottom in existing-home sales,” says Hale. “It’s going to take a long time to improve off of that low.”
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