Housing Market Outlook 2023: When Will Home Prices Fall?

if 2022 was a reckless year for the housing marketThe year 2023 is expected to bring a painful but necessary real estate hangover.

nationally, a An increasing number of experts and companies predict a decline in home prices in the United StatesSome expect a slight single-digit drop, while others expect prices to drop by double digits, perhaps even more than 20%.

However, keep in mind that during the housing frenzy from early 2020 to late 2022, the The country’s median home price inflation has increased by more than 41%.Therefore, even if the most pessimistic forecasts emerge, the historic price gains seen over the past two years will not be capped.

The US housing market is going through what Federal Reserve Chairman Jerome Powell called “Hard correction“And”Reset“It comes from the end of the epidemic madness that feeds”housing bubble. In its battle with record levels of inflation throughout 2022, the Fed made a series of aggressive increases in borrowing rates, which translated into higher mortgage rates that either drove buyers out of the market or scared them away.

Even as mortgage rates have fallen slightly in recent weeks, economists expect higher rates to continue dampening sales throughout 2023. However, some say the market needs this correction to reach a healthier balance between sellers and buyers — as well as a healthier ability to Afford the costs.

All of this, of course, depends on how fair the local markets are.

In Utah, given the continued strong job economy, experts expect the state’s housing market to see some turbulence in 2023, but come out strong next year.

2024 will be better, Jim Wood, one of Utah’s leading housing experts, told the crowd gathered at the Grand America Hotel in Salt Lake City on Friday.

What will happen to the housing market in Utah?

Wood, an Ivory-Boyer senior fellow at the University of Utah’s Kim C. Gardner Institute for Policy, described its details. forecast report commissioned by the Salt Lake Board of Realtors, explaining why he still feels bullish about real estate even if 2023 isn’t the “year of celebration.”

2023 is going to be tough for sales. It will be difficult for real estate agents. Wood said. He predicts that buyers and sellers will “stand back and wait for the dust to settle,” many of whom are locked into mortgage rates as low as 3% that helped drive the country’s housing market into a frenzy in 2020 and 2021.

Wood said reluctant sellers and over-priced buyers will mean 2023 will be a year of declining home sales. After seven years of Salt Lake County sales averaging 18,000 homes, the higher prices for 2023 will mean sales won’t exceed 13,000, he predicted, and likely range from 11,000 to 12,000.

Will home prices fall in Utah?

The West was ground zero of the pandemic housing frenzy and was also one of the first areas to see Get reduced house listing prices The market also corrects.

In Utah, home prices have begun to decline, down from a peak in May, when the median sales price of Salt Lake County homes was $565,600. After the next seven months, the average price fell 14% to $485,829, Wood wrote in his report, erasing percent month-over-month increases until it “finally turned down 2.1% in December.”

How far will they fall? Housing experts in Utah We disagree about how much home prices have fallenthough they remain confident that 2023 will not bring a full 2007-like collapse, and that Utah’s strong jobs economy will still largely insulate it from any negative effects of the recession.

Wood takes a more optimistic view.

He said Yota will see slightly lower prices year-over-year in the first and second quarters of 2023, but prices will begin to stabilize by the third and fourth quarters.

Wood’s research fellow at the Kim C Gardner Institute, Dejan Eskic, is even more bearish, predicting that home prices in Utah will drop 9% year-over-year in 2023. From peak to trough, he expects prices to drop by a percentage somewhere in the states. United. Mid to low teens, depending on interest rates.

As for interest rates, Wood noted that projections vary widely, anywhere from 5% to 9%, but he personally expects rates to bounce back between 6.5% and 7.5% in 2023.

In addition, Wood and Eskic expect that the estimated 31,000-unit housing shortage in Utah will continue to keep home prices high, even if the state sees some price drops, so they expect Housing affordability crisis in Utah to remain an ongoing problem Pricing over 75% of Utah’ss of providing the state’s median-priced home.

Is there a housing bubble?

Powell, the Fed chairman, has called it an insane, pandemic “housing bubble,” but he and other experts have consistently said it’s nothing like 2007 and 2008.

Reporting on Utah, Wood wrote that “the recent price hike is unlikely to represent a housing bubble,” though he added, “We don’t know if the bubble is there until after it’s burst.” He cited Alan Greenspan, an economist and former chair of the Federal Reserve, who defined a housing bubble as a prolonged period of declining home prices.

“Such a decline is highly unlikely in Utah” in 2023 and 2024, Wood wrote.

Wood also said that “2023 isn’t 2008,” when it comes to home prices, noting that “very few desperate, jobless homeowners facing foreclosure…can sit back and wait for the dust to settle.”

As a result, Wood expected the price decline that began in May to stabilize by the third quarter of 2023, and the average annual sales price for 2023 will likely be “within a few percentage points one way or another for 2022.”

Wood added, “Worst-case scenario, prices fall about 5%. Best-case scenario, prices equal 2022.”

Will US home prices fall in 2023?

Economists, consulting firms and other experts have mixed expectations when it comes to the degree to which home prices will contract.

“The price outlook for this year is somewhat[uncertain],” Lawrence Yoon, chief economist for the National Association of Realtors, told the Salt Lake Council of Realtors on Friday.

Yoon said the margin for lower prices will likely depend on the region. He said high-cost areas like San Francisco would see prices drop 15%. He said the Midwest will likely see “modest price increases.”

Cities with strong job growth such as Boise and Salt Lake City are hard to predict, he said, where affordability issues prevent first-time buyers from entering the market.

“It’s really hard to say, but I think it would be minimally negative or positive,” Yoon said. “Or if the declines are more meaningful, a 10% drop, take advantage of that because 10 years from now you will see much better conditions.”

Overall, Yoon expects US home sales to decline by 6.8% in 2023 compared to 2022, and expects home prices to increase by only 0.3%, or essentially the same.

Here’s what other organizations and companies can expect:

  • Realtor.com It expects home prices to continue to rise 5.4% in 2023, while average mortgage rates will be 7.4%.
  • Freddie Mac Projections are that US home prices will decline by just 0.2%, with an average mortgage rate of 6.4%.
  • Redfin The median home sale price in the United States is expected to decline by 4% in 2023
  • Capital Economics He expects 2023 to be the “worst year for sales since 2011,” and he expects home prices to drop 6% this year, which would lead to a peak-to-bottom decline of about 8% to 10%.
  • Moody’s Analytics expects a peak-to-trough US home price drop of 10% – or a 15% to 20% drop in a recession, luck mentioned.
  • John Burns Real Estate Consulting now expects US home prices to drop 20% to 22%, luck Assuming mortgage rates remain close to 6% for the year.

Real estate forecasts in 2023: “a terrible merger”

Redfin CEO Glenn Kellman predicted a January 4 episode of Barron lives That the real estate market, especially when it comes to real estate agents, will face a painful contraction in 2023.

“It’s going to be a terrible merger,” he said, though he added that he believes ultimately “it’s going to be good for the industry.”

In 2020 and 2021, when Congress was writing COVID-19 stimulus checks, Kellman said that “real estate is diversified in an interesting way” because stimulus checks “allowed people to try real estate.”

But now, those days of runaway buyer demand and seller activity are over, and real estate agents outnumber active listings.

In 2022, the Redfin team has gone through two rounds of layoffs. Compass announced a third round of layoffs Thursday, it reported The real deal.

“So I hope the industry is close to the right size and things can improve from here,” Kellman said. “I don’t think that has happened yet.”

Better balance for the buyer

In its monthly report in December 2022, Realtor.com He said monthly housing data showed the housing market continuing to cool, with the number of homes for sale up 54.7% compared to the same period last year.

In its report, Realtor.com stated that the increased inventory, along with listing price growth falling below 10% for the first time in a year, “offers some positives for homebuyers,” as they may have more choices and more time to decide on a home purchase. “.

However, Daniel Hill, Realtor.com’s chief economist, noted that “prices are still significantly higher and homes are selling faster compared to pre-pandemic levels of 2019.”

“Although demand has softened compared to last year, which has pushed home price growth into single-digit territory for the first time in 12 months, moderation in home price growth may encourage more buyers to return to the market in the coming months, and it may be news Welcome to sellers who want to buy and sell at the same time.

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