2023 is only a matter of days away, and while “new year, new you” is the mantra for many, housing market forecasts for the coming year from across the industry predict more of the same issues we’ve been facing in 2022. Darkness is not all that looms on the horizon, however, as there are some beams of sunlight poking through to give hope to upward growth in the market.
The recent National Association of REALTORS®’ (NAR) 2023 Forecast Summit, which took a look at predicted data and trends for the industry, dove into what the residential real estate market will look like in the coming year with a panel of industry experts.
Moderated by Lawrence Yun, NAR’s chief economist, panelists Danielle Hale, realtor.com® chief economist; Danushka Nanayakkara-Skillington, the National Association of Home Builders’ (NAHB) assistant vice president of Forecasting & Analysis; Lisa Sturtevant, BrightMLS’ chief economist; and Selma Hepp, CoreLogic’s interim chief economist, discussed what they feel is in store for the 2023 market.
Home prices will stay high
During the summit, Yun shared that mortgage rates are expected to decline down to around 5.7%, which is a great step toward more potential homebuyers breaking out into the market. However, Hale expressed that home prices don’t look like they will be decreasing anytime soon.
“On the whole, we expect prices to be higher in 2023 than in 2022 because a lot of the shortage conditions that Lawrence presented are still going to be present in the housing market,” said Hale.
She continued on to say that while home prices will grow, she expects it will be half of what it’s been the past year, and that there may even be some year-over-year declines.
Home prices will continue to strain the market, Hale expressed. “We’ve got a decent number of buyers who are waiting for their chance as long as the affordability factors align for them, and so, they’re waiting on the sidelines. I think that’s going to continue to put upward pressure on the housing market.”
While this seems rather negative, Hale shared that there are some upsides to this: more sellers are expected to join in the market in 2023, providing more choices for potential homebuyers.
“It’s still going to be expensive to buy a home and that’s going to mean that going to be a little bit more cautious in making decisions, and the increase in homes for sale is going to bring the balance that gives them more time to make decisions,” said Hale. “So there are some positives for potential homebuyers, even though we don’t expect costs to go down. They are going to have some more options and more time to make decisions, and that’s going to be a good thing.”
A drop in home construction
“For the first time since 2011, we are expecting a decline for single-family starts,” said Nanayakkara-Skillington when asked about NAHB’s outlook for 2023. She shared that the current prediction is at a 25% decline, or below 750,000 units.
Builder confidence as of late has been at a massive low, with the December NAHB/Wells Fargo Housing Market Index posting its 12th straight monthly decline. The confidence reading dropped two points to 31, the lowest reading since 2012.
“Taking into account that 75% of the building is done by smaller builders, we’re expecting real crunch time for next year,” said Nanayakkara-Skillington.
The cost of construction is up 14% from 2021, Nanayakkara-Skillington stated, which is among one of many issues creating roadblocks for home building. Unfortunately, these roadblocks aren’t simple fixes either.
“I don’t see that being like a quick solve. This is like a long-term chronic issue. The building material costs are still going to be much higher, the lending issues for the builders, lending standards, conditions are tightening, and the lot shortages,” said Nanayakkara-Skillington. “All of these issues are keeping the building down. We have the demographics, we have the demand, it’s just the supply side issues.”
There are some bright spots in the coming year, as Nanayakkara-Skillington shared that lumber prices have come down to pre-COVID levels, which will help to decrease the ongoing supply chain issues.
It’s time for a big reset
The post-pandemic market has been anything but normal, with records breaking left and right as far as home prices and mortgage rates are concerned. “For the last couple of years, we could have talked about all housing markets across the country basically using the same language,” said Sturtevant when talking about the recent tumultuous nature of the market.
However, Sturtevant added that, “in 2023, though, there’s going to be a lot of variability in how these markets are adjusting, and I think there’s a lot of resetting of expectations both on the part of buyers and sellers.”
Sturtevant feels that variability will be a big point for every market next year, and that resets will be needed to keep at-risk markets flowing. “As we look around, some of the places that I think are at greatest risk of price declines are some of these sort of ZoomTown communities, some of these places where people with higher incomes maybe brought those higher incomes to the housing market thinking they could work from home, learn from home…where people with higher incomes bid up home prices in those outer markets, those markets are also having to reset to reflect local economic conditions.”
A reset in the market will prompt an opening for buyers, Sturtevant expressed, as sellers are now starting to make attempts to work with the state of the market. “Even as rates have ticked up, people are still sitting on the sidelines. I think it’s about more than just rates at this point. People sort of look to be taking a wait-and-see approach, and we are seeing in sort of our forward-looking pre-sales data that those adjustments, those sort of coming to terms with the new market are happening. So more than 40% of our sellers have adjusted their price downward, we’re seeing more seller concessions being offered. I think this period of coming to acceptance of the new market realities is going to take a little bit of time.”
“A crisis of consumer confidence”
Hepp expressed that right now buyers and sellers are both feeling confused and stressed. “A difficult sentiment that is currently happening in the market. I call it a crisis of consumer confidence.
“At the moment, I think sellers are contending with not wanting to reduce their prices,” said Hepp. “Buyers are contending with the fact that headlines say home prices will come down, their purchasing power has significantly been diminished by higher mortgage rates, and so they are trying to decide ‘do I enter the market?’ with the very likely outcome being that they may end up with negative equity.”
In their recent negative equity report, Hepp said that CoreLogic “did see a decline in that average equity on a year-over-year basis simply due to the decline in home prices.” She also mentioned that they saw “an increase in the number of homes that are underwater, and last time we saw that was in 2009.”
These factors and many others “weigh on consumers’ confidence and their decision to enter the market at this point,” concluded Hepp.
For more information, including the recording of the summit, click here.
Look out for more upcoming coverage of the NAR 2023 Forecast Summit.
