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What the Housing Market Will Look Like in 2023

Friday, December 23, 2022   /   by Laura Larson

What the Housing Market Will Look Like in 2023

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Inflation and fast-rising mortgage rates
have emerged as the two major factors that will shape the housing market in 2023. Furthermore, both inflation and mortgage rates are, in many ways, resetting the market.

Mortgage rates more than doubled this year, which has never happened in a calendar year, as the Federal Reserve (the Fed) took action to try and curb inflation. This finally had a cascading effect on buyer activity, supply and demand, and property prices. Some buyers and sellers chose to postpone their plans and wait until the market appears more predictable as a result of all those changes.

How does that affect the upcoming year, though? Everyone truly wants the market to be more stable in 2023. We will need to see the Fed continue to keep inflation low in order for that to occur. Here is what industry experts predict for the housing market.

How Will Mortgage Rates Change in 2023?
Experts concur that inflation will continue to be the main focus moving forward. Mortgage rates will continue to rise along with inflation when it is high. We're not out of the woods yet, despite perhaps early hints that inflation is slowing as this year comes to a close. Inflation will still be a concern in 2023.

All of this is currently taken into account by experts when predicting mortgage rates for the upcoming year. And if we average their predictions, analysts suggest we can anticipate more rate stabilization in 2023. It's difficult for analysts to predict with certainty where they'll settle, whether that's between 5.5% and 6.5%. However, the average of their forecasts indicates that a more predictable pace is likely to come.

That indicates that we will begin the year at the current point in time. But if inflation keeps falling, rates might start to decrease. According to Greg McBride, Bankrate's Chief Financial Analyst: “... mortgage rates could pull back meaningfully next year if inflation pressures ease.”

In the interim, be prepared for some volatility since rates are expected to change in the coming weeks. The good news for the home market would be if inflation started to decline again.

How Will Home Prices Change Next Year?
Supply and demand will always determine home values. Home prices will rise in direct proportion to the number of purchasers and the number of available properties. And precisely that is what we observed throughout the pandemic.

But this year, things were different. As buyer demand decreased as a result of rising mortgage rates, housing supply increased and property prices began to moderate. The degree of moderation has varied by locality, with the hottest markets experiencing the biggest changes. Do analysts believe that will persist though?

Next year, some experts predicted an increase in property prices, while others predicted a decrease. However, if we average all of the forecasts, we may obtain a sense of what 2023 might entail. Probably somewhere in the middle is where the truth lies. As a result, national appreciation in 2023 is probably going to be rather flat or neutral. The National Association of Realtors (NAR) Chief Economist, Lawrence Yun, says: “After a big boom over the past two years, there will essentially be no change nationally... Half of the country may experience small price gains, while the other half may see slight price declines.”

Bottom Line
The 2023 housing market is going to be defined by mortgage rates, and rates will be determined by what happens with inflation. The best way to keep a pulse on what experts are projecting for next year is to lean on Laura Larson Now!