Posted in January 23, 2023.
Due to elevated mortgage rates and continued price appreciation, buying power is projected to contract further in 2023.
Housing affordability is likely to remain a challenge in 2023 due to continued elevated mortgage rates and budgets constrained by inflation, according to the 2023 Housing Forecast from Realtor.com. The slowdown in home sales transactions that began in 2022 is expected to continue into 2023, and a moderation in home prices is unlikely to make the housing market completely buyer friendly, according to Realtor.com.
Realtor.com forecasts average mortgage rates of 7.4% in 2023, with rate hikes early in the calendar year causing rates to retreat slightly to 7.1% by year-end. While home sales prices are not projected to decline in 2023, Realtor.com projects growth will moderate to a single-digit yearly pace (5.4%) for the first time since 2020. The combination of continued price growth and high mortgage rates will contract buying power, with the typical mortgage payment forecast to increase 28% to $2,430, pricing many prospective buyers out of the market.
“Compared to the wild ride of the past two years, 2023 will be a slower-paced housing market, which means drastic shifts like price declines may not happen as quickly as some have anticipated,” says Realtor.com chief economist Danielle Hale. “It will be a challenging year for both buyers and sellers, but an important one in setting the stage for home sales to return to a sustainable pace over the next two to three years. With mortgage rates continuing to climb as the Fed navigates the economy to a soft-ish landing, higher costs will lead to fewer closings, but that doesn’t mean home buying will stop entirely in 2023.”
Realtor.com forecasts existing home sales to total 5.3 million in 2022, a 13.8% decline from 2021, and decline further in 2023. For 2023, existing home sales are projected to decline 14% from 2022 levels to an annual total of 4.5 million, the lowest level since 2012. While sales are projected to fall, Realtor.com projects an increase in inventory in the existing for-sale market of 22.8% in 2023 compared with 2022. Slower market conditions, fueled by elevated mortgage rate levels, will drive up inventory levels as the turnover of homes slows in 2023. While inventory will increase in 2023, the level of inventory projected for 2023 will remain 15% below the pre-pandemic 2019 levels.
In 2023, rent growth is projected to outpace home price growth (6.3% year-over-year growth for rent compared with 5.4% year-over-year growth for home prices), further adding to budget pressures and exacerbating affordability concerns for first-time buyers. Furthermore, incomes are projected to grow in 2023 by 3.9% year over year, but that increase will not be enough to offset high mortgage rates, home price growth, or rent growth, making saving for a down payment more difficult for prospective buyers.
“Of the many factors that are expected to affect the housing market in 2023, affordability tops the list of issues most likely to make or break buyers’ plans,” Hale says.
In addition to its overall projections for 2023, Realtor.com’s 2023 forecast identified several potential “wildcards” that could impact the housing market. Realtor.com’s forecast points to the possibility of a “second wind” in buying activity in the second half of 2023. While high mortgage rates are likely to cause a less busy spring selling season, falling mortgage rates in the second half of 2023 could provide a potential increase in demand in the latter months of the year. Additionally, substantial weakening in the jobs market could signal an economic recession, which could impact housing trends beyond Realtor.com’s initial projections.
Source: www.remodeling.hw.net
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