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What To Expect For The Housing Market In 2023

Dated: December 21 2022

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The 2022 housing market can easily be defined by two things: inflation and rising mortgage rates. These two things have put the market into a reset position. 

As the Federal Reserve made moves this year to try and lower inflation, mortgage rates more than doubled. This is something that has never happened before in the time of one calendar year. This had a major impact on buyer activity, the balance bewteen supply and demand, and ultimately home prices. As all of these things changed, some buyers and sellers put their plans on hold and decided to wait until the market felt a little bit more predictable and comfortable. 

What does this mean for 2023? What everyone really wants is more stability in the market for the new year. In order for that to happen, we will need to see the Federal Reserve bring inflation down even more and keep it there. 

Moving forward, experts agree it is still going to be all about inflation. If inflation is high, mortgage rates will be as well. If inflation continues to fall, mortgage rates will likely respond. While there may be early signs inflation is easing as we round out this year, we are not in the clear just yet. Inflation is still something to watch in 2023. 

Right now, experts are factoring all of this into their mortgage rate forecasts for next year. If we average those forecasts together, experts say we can expect rates to stabilize a bit more in 2023. Whether that is between 5.5% and 6.5%, it is hard to say exactly where they will land. Based on the average of their projections, a more predictable rate is likely ahead. (See chat below):

This means, we will start the new year out right about where we are at now, but we could see rates tick down if inflation continues to drop. In the meantime, expect some volatility as rates will likely fluctuate in the weeks to come. If we see inflation come back under control, that would be good news for the housing market. 

What Will Happen To Home Prices Next Year?

Home prices will always be defined by supply and demand. The more buyers and fewer homes there are on the market, the more home prices will rise. That is exactly what we saw during the pandemic. 

This year however, things changed. We have seen home prices moderate and housing supply grow as buyer demand pulled back due to higher mortgage rates. The level of modertaion has varied by local area, with the biggest changes happening in overheated markets. Do experts think that will continue?

The graph below shows the latest home price forecasts for 2023. As the differend colored bars indicate, some experts are saying home prices will appreciate next year, and others are saying home prices will come down. If we take the average of all the forecasts, we can get a feel for what 2023 may hold. 

The truth is probably somewhere in the middle. That means nationally, we will likely see flat or neutral appreciation in 2023. As Lawrence Yun, Chief Economist at the National Association of Realtors 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 a trusted real estate expert. 

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