Apr, 2023 - By CMI
The question that pops into mind regarding the USA real estate market outlook for 2023 is: Will the prices drop?
Early in 2023, the same fears that always bedevil the real estate market were still there. These are high inflation, recession fears, geopolitical factors, and rising interest rates.
Still, when we got into spring, which is “officially” the home buying season, there was a 0.2% decline in the sales price of a median home. This came after over 130 months of increase upon increase in the house prices in the past.
But the national averages do not always reflect everywhere in the nation. For instance, Saul Z owner of I Buy IL says “The price of a median home in Aurora has increased by 29.62% over the past 12 months.”
Here are more details about the housing market forecasts for 2023:
Fannie Mae says that in 2023, the sales volume of new homes will drop by 5.4% and that of the existing homes by 19.2%. The high interest rates that deter buyers are to blame for this.
The homeowners with fixed mortgage rates will hold onto their homes since they will not be willing to trade them for high interest rates.
This is partly why the total number of existing homes in the market is going to reduce, thus affecting the overall inventory of homes on sale.
In the last 6 months of 2022, the market recorded a 2.5% drop in the price of homes on sale. This trend seems to have carried onto 2023 and now, Fannie Mae predicts an overall price drop of 4.2% in the whole year.
They also project that this decline will continue into 2024 but the price reduction will slow down to 2.4%. This is nothing to worry the market though because by the end of 2024, the prices will still be up by 29% as compared to the prices in 2020.
And it is not only the Fannie Mae organization that is projecting a drop in house prices. Goldmann Sachs also projects a drop of 7.6% from the 2020 peak of 29%.
Wells Fargo also projects a 5.5% drop in prices from the peak. They say the shortage of housing that has been experienced since the last few years is to blame for this price decline.
While the fast pace of the rental growth of 2022 is expected to decline slightly, there is still a positive outlook into the rental market in 2023.
Low vacancy rates of less than 1% across major cities in the nation keep the market growing, and in 2023, developers are building larger rental spaces.
In the rental office space, the migration to quality will rise in 2023 as more tenants move to first generation space. The second generation office spaces will struggle to find tenants. This is likely to cause many demolitions and/or conversions.
In the first six months of 2023, buyers will have the leverage as the home prices go to a decline, albeit a slow one. The high interest mortgage rates might compel many sellers to meet the buyers at their level.
But sellers will also have some sway in the market as many hold low interest rate mortgages and they will not feel under pressure to sell. They can hold longer, waiting for the kinds of offers they want. This is going to force the market to balance out before the end of the year.
First time homeowners will get their FHA loans. This is not very good news for the sellers as they find out that they no longer have the overall control over the market prices. They dictated the prices in the COVID-19 times (2020, 2021) when inventory was scarce. Many of them will start to transact with customers funded by FHA, VA and other regular loans.
For the first two quarters of 2023, the mortgage rates are going to remain in the mid 6% range. However, in the last two quarters, the rates will rise and peak out at 8%, depending on the buyer's credit.
When the mortgage rates rise, the prices of properties go down. This is why almost every forecast for the real estate market in 2023 has predicted a slow decline in the price of property.
The forecast of the 2023 real estate market trends in the USA seems to be all over in many aspects. But one thing that emerges in all predictions is that it will be slower than 2022 with the demand rising in the last half of 2023.
The insane pace of 2022 has slowed down, the seller does not have the overall control in the market and lower buyer competition for the available inventory sends the prices on a slow decline.