2023 Home Prices: What Do Experts Predict?

Wondering what’s in store for the housing market in 2023? 

2022 was certainly full of ups and downs with U.S. home values peaking in May 2022 and then declining as surging interest rates made already-high home prices unaffordable for many. Though mortgage rates have dropped somewhat along with list prices, high inflation and stagnant wages have reduced buyer demand, resulting in a slower market with challenges for both buyers and sellers.

So what does the future hold? We’ve rounded up the top opinions from leading real estate experts to see what they predict for home prices in 2023: 

Taylor Marr, a Redfin economist, predicts existing home sales will fall 16% on an annual basis next year to about 4.3 million. That’s the lowest level since the aftermath of the Great Recession in 2011. What’s to blame for the drop in demand? High mortgage rates, persistent inflation, and recession projections are continuing to deter would-be buyers. As a result, Marr projects the median U.S. home sale price to drop by roughly 4% to $368,000. That’s down $62,255 from the $430,255 peak in May 2022.

Why not further than 4%? Because new listings are expected to continue declining through most of next year, total inventory will remain near historic lows, preventing prices from dropping more. Q3 of 2023 is when Marr expects to see prices bottom out, followed by a slight rise heading into Q4.

Citing the fact that many current homeowners have locked in very low mortgage rates and are incentivized to keep their homes off the market, Jim Egan at Morgan Stanley initially projected that low inventory would protect home prices from dropping too much. 

Due to additional mortgage rate increases, the firm has revised the projection it made earlier in 2022. Morgan Stanley now predicts that housing values will drop by almost 10% between June 2022 and the bottom in 2024.

In addition to projecting slight drops in home prices in both 2023 and 2024, Fannie Mae predicts the rate for a 30-year fixed rate mortgage will be back up to 7% in Q1 of 2023. After that, the finance company predicts rates will drop between .1 and .2% quarter over quarter, finishing Q4 of 2024 at 5.9%.

Noting the cooling labor market, Freddie Mac forecasts housing demand will continue to decline in 2023, potentially resulting in price drops next year. However, the firm reports that “home price forecast uncertainty is wide due to interest rate volatility and the potential of a recession on the horizon.”

In its 2023 Housing Market Forecast, Realtor.com asserts that while home shoppers will have the advantage of increased inventory in 2023, prices will remain high. The report warns buyers and sellers to maintain realistic expectations because if a stale-mate between buyers and sellers occurs, then “the 2023 housing market could become a ‘nobody’s-market,’ not friendly to buyers nor to sellers.” In addition to projecting a 5.4% rise in home prices in 2023, Realtor.com projects mortgage rates will rise to 7.1% in early 2023 and rise to 7.4% by year-end and those high rates might reduce buyer demand.

Pointing to previously “white-hot” markets now subject to vulnerability, Wells Fargo projects the nationwide average for home prices will fall 5.5% in 2023, but desirable locations with tighter supply are likely to avoid such downturns. Wells Fargo researchers write that if the Fed ends up cutting interest rates, home prices will begin to appreciate heading into 2024.

Diane Swonk, chief economist at the Big Four accounting firm KMPG, cites the momentum of falling home prices stoking buyer fears that home prices will drop even lower, resulting in new homeowners being underwater in their mortgages. This means many potential homebuyers are opting to remain on the sidelines, waiting for the market to bottom. Additionally, she says hiring freezes in the tech industry will also reduce home value appreciation due to high-income earners not having as much access to cash and being hesitant about making large purchases such as a new home. Because so many are fearful about entering the market, Swonk projects, “We expect the S&P Core Logic Case-Shiller home price index to drop 20% on a fourth-quarter-to-fourth-quarter basis in 2023. That would mark the first national decline in the series since 2011 and push prices to December 2020 levels.” She expects sales and construction to have a rebound before year-end 2023.

Barring a few outliers, most analysts agree that homes will be less expensive in the coming year before rising in 2024. If you’ve been thinking about buying a home, now is the time to connect with a real estate agent to see what’s available.

Though prices are dropping, high-interest rates are keeping many potential buyers on the sidelines. If you can afford to buy now, it’s a great moment to avoid competition that will likely enter the market when rates drop again. If you can’t, you should spend this time working on your finances—especially if you’re a first-time buyer. Keep saving for your downpayment so that when you can afford to buy, you’re ready. If you already own a home, use this time to repair and update your property and maximize curb appeal so that you get top dollar when you sell.

Though prices have come down in recent months, home values are still high in comparison to last January. If you bought your home more than five years ago, you’ve likely accrued a record amount of equity. Listing your home now and cashing in before values drop further might be advantageous depending on your circumstances. Get in touch with an expert real estate agent to discuss your specific situation.

Our team prides itself on being local experts. We can discuss the best strategy to help you either buy or sell your home. Reach out to us today and let us know about your goals for the year.

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