Did you know that the U.S. housing market has an estimated inventory of 143.61 million units? These include houses, apartments, and rooms designed as separate living quarters.
That number may seem impressive, but it’s not enough for the growing U.S. population. No wonder the nation’s residential real estate industry is in crisis.
The year 2022 was particularly terrible after it got plagued by high inflation rates. Inflation reached a record high of 8.5%, the highest since 1982.
But with 2022 now over, does that mean the market will improve this 2023? Will it be a good year to buy or sell a home, or should you keep renting?
To that end, we created this guide to the top housing market predictions for 2023 (and beyond). So read on to discover expert insights and use them to help you decide if you should buy, sell, or rent.
Fewer Existing Home Sales
The National Association of Realtors (NAR) projects a 6.8% dip in existing home sales this 2023. From 2022’s expected 5.13 million home sales, it will drop to 4.78 million.
That prediction stems from affordability challenges faced by potential home buyers.
As mentioned above, inflation reached significant heights in 2022. While it may drop to 3.4% this 2023, its effects will linger, such as the previous spending on the high costs it caused.
Let’s not forget the pandemic’s effects, which caused an increase in some types of spending. For instance, many consumers upgraded their electronics and kitchen appliances. Some also purchased sports equipment, considering they can’t go to the gym.
At the same time, the pandemic caused many Americans to lose or get laid off from their jobs. While the employment rate has rebounded, many continue to struggle financially. For example, they may still be paying off loans they took out during the lockdown.
As a result, buyers may choose to delay their home purchases as they wait for their finances to recover.
Many consumers also worry about the possibility of a recession in 2023.
Some experts say the country may experience a mild recession in early 2023. Others believe the nation will narrowly avoid it. Either way, the possibility of it happening is enough for many to cut back on their spending.
Varying Forecasts on Mortgage Rates
Some market experts forecast mortgage rates to stabilize in 2023. Others are more pessimistic, envisioning higher rates than those seen in 2022.
The forecasted rates also differ depending on who you ask.
For example, Freddie Mac predicts 30-year fixed mortgage rates to average 6.4% in 2023. That’s a 1% increase from the previous year. The government-sponsored enterprise also forecasts a dip in home sales and house prices.
On the other hand, Fannie Mae predicts 30-year fixed mortgage rates to average 6.5% in Q1 2023. It also forecasts further dips throughout the year, expecting the annual average to be at 6.3%. Still, that’s 1% higher compared to its reported 2022 figures.
However, the Federal Reserve retains the most significant influence on mortgage rates. In January 2023, it should release its rate policy. Mortgage rates could then drop (or rise) depending on what the Fed says.
Real Estate Housing Market Shortage to Continue
The housing market outlook on supply shortage will most likely continue this 2023.
According to the latest available data, the U.S. lacks 3.8 million homes to meet its housing demand. This crisis started after the Great Recession when new home construction rates dropped. In the years that followed, there were much fewer new homes built.
The COVID pandemic made things worse, as it caused material and labor shortages. That lack of supply also triggered an increase in their costs. So, there was even less incentive for builders to construct new homes.
The NIMBY (Not In My Backyard) movement also seems to contribute to the shortage issue. It’s a group of housing market activists opposing new development in their neighborhoods. Here’s a guide where you can learn and find out more about the NIMBY camp.
Experts also forecast a continued decrease in new home construction this 2023. It will stem from higher mortgage rates, building costs, and labor expenses.
For example, one report forecasted an 11% drop in new single-family housing starts in 2022. However, the same report predicted that, for 2023, it would be double that.
If things continue at this pace, the shortage will only worsen as the population grows. And the fewer houses available for purchase or rent, the higher their cost.
Median Home Sale Prices May Drop
Despite all the bleak forecasts for 2023, those buying a home this year may see lower median sale prices. One basis for this is the predicted decrease in home sales. On one end, fewer would-be buyers would push through with their plans.
So, with fewer buyers, those selling a home could also face reduced offers, if any.
That gives prospective buyers an advantage since they would have fewer competitors. As a result, they may have more negotiating power and, thus, ask for a lower price. On the other hand, sellers may have to give in, especially those who need to sell ASAP.
Rental Fees Likely to Increase
With mortgage rates expected to rise this 2023, renting may sound better to some. After all, monthly rental payments are undeniably lower than typical mortgage payments.
Unfortunately, rental fees may increase more than mortgage costs in some areas. As a result, long-term rental costs may exceed that of home ownership.
Still, those looking to rent for only a year may be better off pushing through than panicking and buying. It may be worth waiting for 2024, as it could be the year in which the buyer’s market may improve. For instance, some experts forecast mortgage rates to fall from 2023 to 2024.
Consider These Predictions Before Buying or Selling
As you can see, the U.S. housing market may not see significant improvements this 2023. Still, buyers can look forward to the expected dips in mortgage rates and home prices.
However, if you’re a seller, you might want to sell your house before the average sales price drops. Doing so may help you negotiate and secure a higher price for your home.
For more of the latest news in housing, tech, or business, browse our most recent articles.
