Recent media stories are panicking home sellers and their buyers about high mortgage rates, inflation, and recession. What will happen with the real estate market in 2023
Our San Diego home buyers are taking advantage of big home sales prices.
KEY TAKEAWAYS
- Media news stories in October and November of 2022 predicting higher interest and mortgage rates along with inflation may result in a national economic recession.
- If true, high mortgage rates, inflation, and a possible recession will lead to a housing market crash in 2023. Thus, home buyers, sellers, and investors are panicking.
- By November, interest rates nearly doubled from the low in early 2022.
- The National Association of Realtors is claiming the lowest home-selling pace in the last 10 years. Other experts predict the housing sales decline will continue in 2023.
- Some experts predict rising interest and mortgage rates into 2023 while others say “No”.
- Many experts predict lower home values in 2023 which is good news for buyers.
- Experts differ on whether the housing inventory will increase in 2023.
- Most experts predict more affordable homes in 2023.
- Will 2023 become a seller’s or buyer’s market? It looks like it may become a Buyer’s Market.
- San Diego is experiencing a significant home price decline.
- Now is a good time to buy a home in the greater San Diego area.
What Will Happen With The Real Estate Market In 2023?
November 2022 Fox Business headline screams: “Home prices to decline in 2023, recession ahead: Fannie Mae forecast.”
OK, it’s Fox News, yet neutral sites like Bankrate also claim: “Mortgage rates escalating higher, home sales and prices hitting the brakes”. Making homeowners and prospective buyers nervous about 2023.
The Chicago Tribune recently screamed: “Mortgage Rates too high? Blame it on the Fed, Wall Street, and your neighbor.”
With the November 2022 mortgage rate at 7 percent for a 30-year fixed rate mortgage and inflation at 8.2 percent is alarming.
According to the National Association of Realtors, currently, homes are selling at the slowest pace observed in 10 years. This raises questions like:
Will Mortgage Rates Continue to Rise in 2023?
Interest rates nearly doubled from the low in early 2022. Will this trend continue?
Some experts say “Yes” like Nadia Evangelou, senior economist and director of Real Estate Research for NAR. She sees three scenarios:
- Inflation continues to remain high which forced the Federal Reserve (Fed) to raise interest rates possibly as high as 8.5%; or
- The Fed repeatedly raises interest rates to fight inflation causing a recession; or
- The Consumer Price Index reacts to the Fed hikes with a gradual decrease in inflation, causing mortgage rates to stabilize near 7% in 2023.
Two out of three scenarios are bad!
Other experts say “No” like Dennis Shirshikov a professor of economics and finance at the City University of New York. He predicts 15-year and 30-year mortgage loans peaking at 8.25% and 8.75% respectively in 2023. Thus, he predicts slightly higher mortgage rates leveling off.
Will Housing Sales Decline in 2023?
All three of Ms. Evangelou’s scenarios predict declining sales. In her scenario #1, home sales decrease by 10%. In scenario #2, home sales drop further by 15%. Her scenario #3 home sales drop by 7% to 8%.
While Shirshikov predicts a longer time on the market up to two or three times than in 2022.
Will Home Values Decline in 2023?
Evangelou predicts a slight increase of around 1% in 2023 following the long-held belief of supply and demand markets where low inventory causes a price increase.
Yet, most experts predict that prices will drop in 2023. That’s because higher mortgage rates mean buyers can only afford less.
For instance, Robert Johnson, a professor of finance at Creighton University’s Heider College of Business, believes higher mortgage rates will hurt home prices. He says: “A soft real estate market with prices at levels lower than current levels will result.”
Great news for home buyers while not so welcome news for sellers.
Will Housing Inventory Increase in 2023?
Experts differ on whether the housing inventory will increase.
Rick Sharga, executive vice president of Market Intelligence for ATTOM Data Solutions, which analyzes real estate and property data, says “No”.
Yet, other experts predict an increase in supplies in 2023. For instance, Shirshikov predicts: “Housing inventory will rise throughout 2023 as homes become more unaffordable due to high rates.”
Will Homes Become More Affordable in 2023?
Shirshikov predicts less affordable homes due to the rise in monthly mortgage payments. Home prices will fall but not enough to offset inflation and the high mortgage rates.
McBride sees a slight drop in prices if inflation and mortgage rates ease.
Johnson sees higher mortgage rates and lower home prices canceling each other out as sellers will pay higher mortgage rates for another home. Thus: “Overall home affordability won’t change dramatically”.
Got Questions?
Will 2023 Become a Seller’s or Buyer’s Market?
It’s been a seller’s market for the past two years before July 2022 according to Greg McBride the chief financial analyst for Bankrate. Yet, he predicts “economic worries and affordability issues will depress home buyer demand while inventory of homes for sale will remain limited”. Thus, the market will become balanced.
However, Johnson predicts “a buyer’s market next year because many reluctant sellers waiting for the market to turn around will capitulate adding to more housing supply”.
Finance Yahoo on October 30, 2022, also asked “Is There Going To Be A Housing Market Crash In 2023?” However, Yahoo says “No” because even if housing prices decline by 20% in 2023 the available money supply of potential buyers will offset by buying more houses and taking advantage of the price drop.
We published other articles here that answer some of the same questions:
- “Is There A Housing Bubble?” which concludes with a “No”. This is based on conclusions by Forbes and Bankrate whose experts predict a positive outcome in 2023 regarding the national housing market; and
- “Is There a Housing Shortage Coming?” where we concluded that rising mortgage rates may balance rising home prices. Fewer buyers will force sellers to lower their prices.
What Will Happen With The Real Estate Market In 2023? – Conclusion
As you read, the question, “What Will Happen With The Real Estate Market In 2023?” is not easily answered. The experts seem to agree that 2023 may be a transitional year with uncertainty.
Tip: It all depends upon how well the Fed curbs inflation. Accomplishing that will reduce interest rates. That will lead to lower mortgage rates. Then, homes become more affordable. Thus, leading to more home sales.
On October 28, 2022, KPBS, a San Diego television station, announced that:
“San Diego home prices drop as mortgage rates reach 20-year high”.
The median San Diego home price fell from $850,000 to $795,000 resulting in a 6% drop. Expect this trend to continue into 2023.
Thinking of Buying a Home in San Diego?
As you read here, now is a good time to buy a home in the greater San Diego area.
Big Block Realty offers you experienced Realtors who know every neighborhood in San Digo County. Take advantage of the falling home prices now.
Big Block Realty is recognized as the 49th Best Independent Real Estate Brokerage in the U.S. in 2022 out of 106,000 real estate brokerages by
The Wall Street Journal partnering with Real Trends Rankings.
Best in San Diego: Big Block Realty is also recognized in 2022 as the Best Brokerage in San Diego for four straight years (2018 – 2021) by the LocalBest.com site.
Contact us today to learn more about buying affordable homes in San Diego.
Steven Rich, MBA – Guest Blogger
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