Americans looking to buy a home in the coming year can expect less competition, more homes to choose from, and the highest average mortgage rates in nearly two decades. Here’s what they can’t expect: a widespread price decline that would bring relief to defaulting homebuyers.
That’s the main takeaway from Realtor.com’s Housing 2023 Forecast released on Wednesday. The fall in home prices “may not happen as quickly as some have anticipated,” said Realtor.com chief economist Danielle Hale. Prices will rise during the first half of 2023 and will likely fall or flatten during the second half of next year, she told CBS MoneyWatch.
“We expect, for the year as a whole, 2023 to be higher,” Hale said. “Buyers who want to buy may have to wait a bit.”
The housing market will soon turn the page in 2022, a year in which mortgage rates soared along with home prices. Some cities in particular, like Boise, Idaho; and Austin, Texas, saw double-digit percentage increases in prices. The rising cost of home ownership deterred many would-be buyers from continuing to rent.
Home prices have fallen in many areas through the end of 2022, but mortgage rates have continued to rise. The average interest rate for a 30-year fixed mortgage was around 6.6% this week, more than double the rate at the start of the year.
Realtor.com expects mortgage rates to rise further early next year as the Federal Reserve continues to raise its benchmark interest rate. Mortgage rates could hit 7.4% in the first half of 2023 before settling at around 7.1% towards the second half of the year, the company said. Factoring in increases in home prices and loan rates, the typical monthly mortgage payment next year will be around $2,430, up 28% from this year, Realtor.com predicted.
The rapid increase in prices has blocked many potential buyers. In a recent LendingTree survey, nearly half of respondents said they were putting off major decisions, whether it was renting for a longer period of time or putting off major home renovations.
Mortgage rates have risen so fast this year that they have made it difficult for buyers to calculate how much home they can afford, Hale said. In 2023, interest rates probably won’t fluctuate as much, she said.
“Having more stability will make it easier for buyers to set the right budget,” he said. “And that should help encourage people to get back into the housing market.”
Larger metropolitan areas
Home prices are likely to rise in the nation’s 100 largest metropolitan areas, according to the Realtor.com report. Expect increases of 10% in Grand Rapids, Michigan; Portland, Maine; Providence, Rhode Island; Spokane, Washington and Worcester, Massachusetts.
Higher prices are likely to keep many potential home buyers away, sending rental prices up 6.3% and the number of homes sold down 14%, Realtor.com said. However, housing inventory (the number of homes available for sale) is expected to increase nearly 23% next year, which could provide a wider variety of homes to choose from for those who can buy them.
To be sure, all of these predictions could change depending on how the Federal Reserve handles its fight against inflation next month and early next year, Hale said. The Federal Reserve has raised its reference rate six times this year, and with each increase, mortgage rates have gone up as well. Hale and other economists expect the Fed to raise its rate again next month, but perhaps not as much as previous hikes.
“The housing market has borne the brunt of the Fed’s attempt to rein in inflation,” Sean Black, chief executive of mortgage lender Knock, said in his company’s 2023 housing forecast. “Sellers still have the advantage in most of the country’s largest metropolitan areas, and many will continue to favor sellers well into 2023.”
