Housing Market Outlook For 2023: Crash or Stumble?

The US real estate market is expected to remain strong in 2023, with home prices continuing to rise, albeit at a much slower rate. However, there is no consensus among experts on whether the historically tight housing market will loosen. Persistent inventory shortages and rising interest rates are discouraging potential sellers and new construction, leading to a competitive market with high prices and tight inventory. Mortgage rates are expected to remain around 6.5%, affecting the decline in home values.

Despite predictions of a housing market crash, experts believe it is highly unlikely due to more responsible lending and borrowing practices implemented since the last crash. Home sales are expected to decline due to supply-demand imbalances, but buyers remain interested in the market. The National Association of Realtors predicts that home prices will increase by 1.2% in 2023, while Fannie Mae expects both new and existing home sales volumes to drop by 5.4% and 19.2%, respectively. Prices will likely begin to stagnate this year, with slight increases and decreases in different areas.

As Greg McBride, Bankrate’s Chief Financial Analyst, put it, “Home prices are high, mortgage rates are high, and inventory is still quite low. If the economy and the job market hang in there, we’ll see some pickup in housing activity but no material changes to the price, rate and supply fundamentals.”

The rental market is expected to remain strong, with high demand for rental properties. However, concerns about housing affordability persist, with a significant percentage of renters and homeowners spending more than 30% of their monthly income on housing. Some cities are at a higher risk of a decline in home prices over the next 12 months, but the national housing market is expected to pick up again in the long run, with positive home price appreciation in the next 12 to 24 months.

So what does all this mean for prospective home buyers? Well, those holding out for a crash in prices may not want to hold their breath. While there is a possibility of a decrease in certain regions, most analysts are predicting a slowdown or stagnation. That is, of course, unless the recession we’ve been anticipating comes to pass.

Jack Macdowell, chief investment officer and co-founder of the Palisades Group, mirrored a similar sentiment with regards to a potential economic downturn: “We think that the most significant risk to the near-term market (and housing market) outlook is the potential for a severe recession and/or prolonged stagflation,”

Signs seem to point to the US housing market in 2023 experiencing a cooling trend, with home prices rising at a slower rate and inventory remaining tight. Mortgage rates and regional factors will play a significant role in the market’s performance. While a housing market crash is unlikely, experts recommend monitoring certain indicators like home prices, inventory levels, and interest rates and improving credit scores to be eligible for the best mortgage rates when purchasing a home.

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