The frenzied housing market has come and gone, but that doesn’t mean the sky is falling. Instead, new forecasts from Bright MLS suggest that shifting conditions signal a market correction and further cooling.
As the year’s final days dwindle down, Bright released its 2023 Housing Market Forecast Wednesday, making several predictions for next year’s housing market, including price corrections and dwindling sales.
Following the past two years of double-digit growth, home prices experienced a cooling effect early in 2022. The median price for a home in the U.S. was $384,000 in 2022—up 9.5% from the year before.
As the market resets in the coming year, agents and consumers can expect further price corrections in housing markets nationwide.
Forecasters say that the average price will climb by an extra $1,000, or 0.3%, next year, with some areas likely to see price declines as high as 10% in the coming year.
The areas at greater risk than others to see steeper price corrections include markets that saw prices surge fastest during the pandemic and experienced faster inventory increases in the past years.
The report also noted that areas with weaker labor markets considered the “least affordable markets” in the U.S. will also see significant price drops in the coming year.
Home sales are also likely to wane next year compared to 2020 and 2021—arguably the best years in the industry’s history. Bright suggests that after seeing sales drop to 5.2 million by the end of this year, they would fall to 4.87 million by the end of 2023—the lowest level since 2014.
The forecasted sales decline will be partially attributed to the pool of homeowners that took advantage of sub-3% mortgage rates in 2020 and 2021, which Bright MLS said leaves “little incentive to list next year as average rates will remain around 6%.”
After ending 2022 at around 6.5%, Bright expects mortgage rates to fall to 6% in 2023.
U.S. housing market forecast
- Existing Home Sales: 5.2 million in 2022 to 4.9 million in 2023—down 6.5% YoY
- Existing Median Home Price: From $384,000 in 2022 to $385,000 in 2023—up 0.3% YoY
- 30-Yr. FRM Rate at Year’s End: 6.5% in 2022 to 6% in 2023—down 0.5 percentage points
Key highlights
- Demand will rebound in 2023, but low inventory will push U.S. home sales to a nine-year low of 4.87 million.
- Mortgage rates will stabilize and come down through 2023, ending the year at 6%.
- Home prices will be stable in 2023, with the median home price nationally rising just 0.3%.
- Market conditions will vary depending on the strength of the local economy and the speed with which the housing market accelerated during the pandemic.
- Homebuyers will have more leverage and options in most markets in 2023, but it will still be a seller’s market as inventory is expected to remain tight.
- The top five strongest housing markets in 2023 will be Minneapolis, St. Louis, Virginia Beach, Louisville and Indianapolis.
- Las Vegas; Riverside-San Bernardino, California; Phoenix; Austin, Texas and Los Angeles top Bright’s list of markets where prices could see the most significant home price declines in 2023.
The takeaway
“As demand has stalled and price expectations are being adjusted, home prices in most local markets will be coming down from their pandemic peaks,” said Dr. Lisa Sturtevant, Bright MLS chief economist. “But 2023 is not 2008, when home prices fell by 30% or more in some places due to a perfect storm of loose credit standards, a surge in subprime lending, an oversupply of homes and rising unemployment.
“The situation today is much different—lending standards are much stricter than they were 15 years ago, supply remains limited and employment is strong. Millennials, many of whom are at peak first-time home-buying ages, will fuel strong demand throughout 2023. The challenge is that there will be too few homes available to meet that demand, and high home prices will still make affordability a challenge, particularly for first-time buyers.”
