As we enter into a new year, I often get asked what we can expect to see in the Real Estate sector. As an area expert, I closely follow our local trends and market movement as well as listen to a variety of expert economists and try my best to merge the two into what I believe is an accurate representation of what is happening on our ‘hyper-local ‘street’. Here is a summary of Matthew Gardner’s, Windermere Real Estate’s Chief Economist, predictions for 2023. I believe this to be an accurate reflection of what to expect at a high level. However, keep in mind that before making any real estate decisions you should always consult a local market expert, like me, to understand how these trends are translating into our local market.
1. There is no housing bubble
The housing market recessed this year(2022) due to a spike in mortgage rates and rapid price growth, but Gardner doesn’t believe that this means we are recreating the housing bubble of 2007. He expects prices to resume their long-term average pace of growth. Historically, our local appreciation rate has been between 3-5%YOY.
2. Mortgage rates will drop
With the Federal Reserve being so aggressive in keeping interest rates well above normal to address inflation, we saw mortgage rates rapidly peak at over 7 percent by October 2022. They have already begun to reverse that trend as of December with rates hovering around 6.5%. It is expected that the Fed will start pulling back from its aggressive policy stance next year, and this will allow rates to begin slowly stabilizing. It is expected that the mortgage rates will dip into the high 5 percent range in 2023. While this is higher than we have become used to, it’s still more than 2 percent lower than the historic average.
3. Don’t expect inventory to grow significantly
Inventory levels are still well below their long-term average despite rising in 2022. A significant number of homeowners will not want to sell because they do not want to lose their low mortgage rate. It is expected that the 2023 market will not have the normal turnover in housing that we have seen in recent years. Locally, we still face a tremendous amount of growth and lower inventory is still a significant issue.
4. No buyer’s market but a more balanced one
It is unlikely that we will see a buyer’s market in 2023. It is expected for the supply level to remain very low and highly competitive, and we may see a return to a more balanced market over time. Our local market will not have the same ‘fire’ mentality we saw previously with competing bids being the order of the day. It is likely that we will see a little more balance in the market.
5. Sellers will have to become more realistic
The days of home sellers having the upper hand for several years are behind us. Higher mortgage rates and lower affordability are limiting how much buyers can pay for a home. It is expected for listing prices to pull back further in the coming year. This factor will make accurate pricing as you first list your home for sale more important than ever.
6. Workers return to work (sort of)
The pandemic allowed buyers to look further away from their workplaces and into more affordable markets because of work-from-home policies. Many businesses are still determining their long-term prospects of working from home.
Buyers will want to delay buying until they know how often they’re expected to work at the office.
7. New construction activity unlikely to increase
Permits for new home construction are down by over 17 percent year over year. It is predicted that builders will pull back further in 2023. Builders will start seeing some easing in the supply chain issues that hit them hard because of the pandemic lockdowns, but development costs will still be high.
Rising homebuilding costs and higher mortgage rates will likely lead builders to slow activity. This will support the resale market, as fewer new homes will increase the demand for existing homes.
8. Not all markets are created equal
What used to be cheap housing markets that had an influx of remote workers will likely see prices fall by a greater percentage than in other parts of the country. These markets will start to see prices stabilize by the end of 2023 and resume a more reasonable pace of price growth. Our local market is still seeing an influx of new residents and corporate relocations. It is not likely that we will be hit by large price reductions in 2023.
9. Affordability will continue to be a major issue
In most markets, home prices will not increase in 2023, but any price drop will not be sufficient enough to make housing more affordable. Mortgage rates will continue to remain higher than they’ve been in over a decade.
Renters are not spared from this issue. That does not mean they will never be able to buy a home, just that they may have to wait a lot longer.
10. Government will start to take housing more seriously
With a wave of demand coming from younger generations, the pace of housing production must increase significantly. Many markets simply don’t have enough land to build on. In many areas, cities, counties, and states have started adjusting their land use policies to free up more land for housing.
Officials can help housing developers by utilizing Tax Increment Financing tools, in which the government reimburses a private developer as incremental taxes are generated from housing development.
There are many tools like this at the government’s disposal to help boost the housing supply, and hopefully, the government will start to take this critical issue more seriously.
I hope you find this information useful and as always, reach out to me to discuss how this applies to your specific needs and real estate goals.