Last year, one factor drove the real estate
market more than any other: rising mortgage rates.
In March 2022, the Federal Reserve began a
series of interest rate hikes in an effort to pump the brakes on inflation.1
Although some market sectors have been slow to respond, the housing market has
Both demand and price appreciation have
tapered, as the primary challenge for homebuyers has shifted from availability
to affordability. And although this higher mortgage rate environment has been a
painful adjustment for many buyers and sellers, it should ultimately lead to a
more stable and balanced real estate market.
So what can we expect in 2023? Will mortgage
rates continue to climb? Could home prices come crashing down? This is one of
the more challenging real estate periods to forecast, but here’s what several
industry experts predict will happen to the U.S. housing market in the coming
RATES WILL FLUCTUATE LESS
In 2022, 30-year fixed mortgage rates surged
from roughly 3% in January to around 7%. According to Rick Sharga of real
estate data company ATTOM, “We’ve never seen rates double in so short a
This year, economists forecast a less dramatic
In an interview with Bankrate, Nadia
Evangelou, senior economist for the National Association of Realtors, shares
her vision of three possible mortgage rate scenarios:3
continues to surge, forcing the Fed to repeatedly raise interest rates. In
that scenario, she predicts that rates could reach as high as 8.5%.
decelerates and mortgage rates follow suit, averaging 7 to 7.5% for the year.
interest rates trigger a recession, which could ultimately lead mortgage
rates to drop closer to 5% by the end of the year.
Realtor.com forecasts something similar to
scenario #2 above: “Mortgage rates will average 7.4% in 2023, trickling down to
7.1% by year’s end.”4 The Mortgage Bankers Association, however,
projects something closer to Evangelou’s scenario #3, with the 30-year fixed
rate declining steadily throughout the year, averaging 6.2% in Q1 and 5.2% by
Economists at Fannie Mae fall somewhere in the
middle. In a recent press release, they predicted that the U.S. economy will
experience a “modest recession” this year.6 But in their December
Housing Forecast, they project that 30-year fixed mortgage rates will only fall
by half a point from an average of 6.5% in Q1 to 6.0% in Q4.7
“From our perspective, the good news is that
demographics remain favorable for housing, so the sector appears
well-positioned to help lead the economy out of what we expect will be a brief
recession,” said Fannie Mae Chief Economist Doug Duncan.6
What does it mean for you? Even the experts
can’t say for certain where mortgage rates are headed. Instead of trying to
”time the market,” focus instead on buying or selling a home when the time is
right for you. There are a variety of mortgage options available that can make
a home purchase more affordable, including adjustable rates, points, and
buydowns—and keep in mind you may be able to refinance down the road. We’d be
happy to refer you to a trusted mortgage professional who can outline your best
VOLUME WILL FALL AND INVENTORY WILL RISE
It looks like the home-buying frenzy we
experienced in recent years is behind us. Although the desire to own a home
remains strong, higher mortgage rates have made it unaffordable for a large
segment of would-be buyers.
Many economists expect the number of home
sales to continue to decline this year, leading to an increase in listing
inventory and days-on-market, or the time it takes to sell a home. But, there
is a wide range when it comes to specifics.
Economists at Fannie Mae forecast that total
home sales will fall by around 20% this year before rising again by nearly 15%
in 2024.7 National Association of Realtors Chief Economist Lawrence
Yun projects a less extreme dip of 7% in 2023 with a rebound of 10% next year.8
Realtor.com Chief Economist Danielle Hale
foresees something in between. “The deceleration in home sales is likely to
continue as high home prices and mortgage rates limit the pool of eligible home
buyers. We anticipate that existing home sales will decline another 14.1% in
2023.” She expects this drop in sales to lead to a nearly 23% increase in
inventory levels this year, offering more choices for buyers who have struggled
to find a home in the past.9
However, given the severe lack of housing supply,
even with a double-digit increase, the market is expected to remain relatively
tight and below pre-pandemic levels. Hale points out: “It’s important to keep
historical context in mind. The level of inventory in 2023 is expected to fall
roughly 15% short of the 2019 average.”9
What does it mean for you? If you’ve been
frustrated by a lack of inventory in the past, 2023 may bring new opportunities
for you to find the perfect home. And today’s buyers have more negotiating
power than they’ve had in years. Contact us to find out about current and
future listings that meet your criteria.
If you’re hoping to sell, you may want to act
fast; rising inventory levels will mean increased competition. We can help you
chart the best course to maximize your profits, starting with a professional
assessment of your home’s current market value. Reach out to schedule a free
PRICES WILL REMAIN RELATIVELY STABLE
Some economists expect home prices to fall
this year, yet many expect them to remain fairly stable. “For most parts of the
country, home prices are holding steady since available inventory is extremely
low,” said Yun at a November conference.8
Nationally, Yun expects the average median
home price to tick up by 1% in 2023, with some markets experiencing greater
appreciation and others experiencing declines.8 Economists at Fannie
Mae offer a similar projection, forecasting a slight decrease in their Home Price
Index of about 1.5%, year-over-year.7
Other experts foresee a larger fluctuation.
Hale expects U.S. home prices to rise by 5.4% this year, while Morgan Stanley
is forecasting a 7% drop from the peak in June 2022.9,10
Locally, Bright MLS Chief Economist Lisa Sturtevant
predicts that home prices in the Baltimore Metro area will remain relatively
flat throughout much of 2023. So although a greater degree of change may be
possible in other areas of the country, here in our area we’re unlikely to see
any wild fluctuations in home prices.
Many economists agree, moreover, that a
housing market crash like the one we experienced in 2008 is highly unlikely.
The factors that caused home prices to plunge during the Great
Recession—specifically lax lending standards and a surplus of inventory—aren’t
prevalent in our current market.10 Therefore, home values are
expected to remain comparatively stable.
What does it mean for you? It can feel
scary to buy a home when there’s uncertainty in the market. However, real
estate is a long-term investment that has been shown to appreciate over time.
And keep in mind that the best bargains are often found in a slower market,
like the one we’re experiencing right now. Contact us to discuss your goals and
budget. We can help you make an informed decision about the right time to buy.
And if you’re planning to sell this year,
you’ll want to chart your path carefully to maximize your profits. Contact us
for recommendations and to find out what your home could sell for in today’s
PRICES WILL CONTINUE TO CLIMB
Affordability challenges for would-be buyers,
inflationary pressures, and an overall lack of housing could continue to drive
“above-average” rent price increases in much of the country.11 The
Federal Reserve Bank of Dallas expects year-over-year rental price growth to
tick up to 8.4% in May before moderating later in the year.12
According to Hale, “U.S. renters will continue
to face challenges from limited supply and excess demand in the coming year
that will keep upward pressure on rent growth. At a national level, we forecast
rent growth of 6.3% in the next 12 months, somewhat ahead of home price growth
and historical rent trends.”9
However, there are signs that the surge in
rent prices could be tapering. According to Jay Parsons, head of economics for
rental housing software company RealPage, there’s some evidence of a slowdown
in demand. He predicts that market-rate rents will rise just 3.3% this year.
Still, analysts agree that a return to lower pre-pandemic rental prices is
What does it mean for you? Rent prices are
expected to keep climbing. But you can lock in a set mortgage payment and build
long-term wealth by putting that money toward a home purchase instead. Reach
out for a free consultation to discuss your options.
And if you’ve ever thought about purchasing a
rental property, now may be a perfect time. Call today to get your investment
property search started.
HERE TO GUIDE YOU
National real estate forecasts can provide a
“big picture” outlook, but real estate is local. As local market experts, we
can guide you through the ins and outs of our market and the issues most likely
to impact sales and drive home values in your particular neighborhood.
If you’re considering buying or selling a home
in 2023, contact us now to schedule a free consultation. We’ll work with you to
develop an action plan to meet your real estate goals this year.
The above references an opinion and is
for informational purposes only. It is
not intended to be financial, legal, or tax advice. Consult the appropriate
professionals for advice regarding your individual needs.