2023 is just days away, and while “new year, new you” is the mantra for many, housing market forecasts for the coming year from across the industry predict more of the same issues we faced in 2022. Darkness isn’t all on the horizon, however, as There are some sunshine packages that are emerging to give hope of bullish growth in the market.
The recent National Association of Realtors (NAR) 2023 Forecast Summit, which took a look at forecast data and trends for the industry, delved into what the residential real estate market will look like in the coming year with a panel of industry experts.
Moderated by Lawrence Yoon, Chief Economist at NAR, and panelists Daniel Hill, Chief Economist at realtor.com®; Dhanushka Nanayakkara-Skelington, National Association of Home Builders (NAHB) Assistant Vice President for Forecasting and Analysis; Lisa Sturtevant, Chief Economist, BrightMLS; and Selma Heap, Interim Chief Economist at CoreLogic, discuss what they feel is in store for the 2023 market.
Home prices will remain high
During the summit, Yoon said mortgage rates are expected to drop to around 5.7%, which is a great step toward more potential homebuyers entering the market. However, Hill expressed that home prices don’t look like they’re going down anytime soon.
“Overall, we expect prices to be higher in 2023 than they were in 2022 because a lot of the shortage conditions that Lawrence presented still exist in the housing market,” Hill said.
She went on to say that while home prices will grow, she expects them to be about half of what they were last year, and that there could be some year-over-year declines.
Hill expressed that housing prices continue to stress the market. “We have a fair number of buyers who are waiting for their opportunity as long as the affordability factors align with them, and therefore, they are waiting on the sidelines. I think this will continue to put upward pressure on the housing market.”
While that sounds somewhat negative, Hill said there is some upside to this: More sellers are expected to join the market in 2023, providing more options for potential homebuyers.
“It’s still expensive to buy a home and that means they’re going to be a little bit more careful with their decisions, and the increase in homes for sale will balance out which gives them more time to make decisions,” Hill said. So there are some positives for potential homebuyers, although we don’t expect Lower costs. They’ll have more choices and more time to make decisions, and that’s going to be a good thing.”
Reduction in home construction
“For the first time since 2011, we expect a decrease in single-family starts,” Nanayakkara-Skelington said when asked about NAHB’s outlook for 2023.
Construction confidence has recently been very low, with the NAHB/Wells Fargo Housing Market Index for December posting its 12th straight monthly decline. The confidence reading fell by two points to 31, the lowest reading since 2012.
“Keeping in mind that 75% of the building was done by smaller builders, we anticipate a real tough time for next year,” said Nanayakkara-Skellington.
The cost of construction is up 14% from 2021, Nanayakkara-Skillington said, which is among the many issues creating roadblocks to building homes. Unfortunately, these roadblocks aren’t simple fixes either.
“I don’t see this as a quick fix. This is like a chronic, long-term problem. Building material costs will continue to be much higher, problems with lending to builders, lending standards, conditions are tightening, shortages of a lot,” Nanayakkara Skellington said. “All these issues keep the building rundown. We have the demographics, we have the demand, it’s just supply-side issues.”
There are some bright spots in the year ahead, as Nanayakkara-Skillington reports that lumber prices have fallen to pre-COVID levels, which should help reduce persistent supply chain issues.
It’s time for a big reset
The post-pandemic market has not been normal, with records being broken left and right for home prices and mortgage rates. “Over the past two years, we could talk about all the housing markets across the country using basically the same language,” Sturtevant said when speaking about the recent turbulent nature of the market.
However, Sturtevant added that “in 2023, there’s going to be a lot of variance in how these markets adjust, and I think there’s a lot of reset of expectations on the part of buyers and sellers.”
Sturtevant feels that variance will be a big point for each market in the coming year, and a reset will be needed to keep the vulnerable markets flowing. “As we look around, some of the places that I think are at greater risk for lower prices are some of these types of ZoomTown communities, some of these places where people with higher incomes might be bringing those higher incomes into the housing market thinking they can work from home, learn from The home…as higher-income people bid on home prices in those overseas markets, those markets also have to readjust them to reflect local economic conditions.”
Sturtevant said a market reset will open the door for buyers, as sellers are now beginning to make attempts to work with the state of the market. Even with prices rising, people are still sitting on the sidelines. I think it’s about more than just rates at this point. People are kind of looking to take a wait-and-see approach, and we see in kind of our forward-looking pre-sales statements that those adjustments, that kind of new market alignment is happening. So over 40% of our sellers have adjusted their price down, and we’re seeing more seller concessions. I think it will take some time to accept the new market realities.”
“Crisis of Consumer Confidence”
Hepp expressed that right now buyers and sellers are feeling overwhelmed and stressed. “A difficult feeling is currently going on in the market. I call it a crisis of consumer confidence.
“Right now, I think the sellers are dealing with an unwillingness to lower their prices,” Heep said. “Buyers are dealing with the fact that the headlines are saying home prices are going to drop, and their buying power has been greatly diminished by rising mortgage rates, and so they’re trying to decide ‘Should I get into the market?'” The very likely outcome is that they may end up with a negative balance.
In its recent negative equity report, Hepp said CoreLogic “seen this average equity decline year-over-year due to the decline in home prices.” It also stated that they had seen “an increase in the number of homes flooded, and the last time we saw that was in 2009.”
Heap concluded that these and many other factors “influence consumer confidence and their decision to enter the market at this point.”
For more information including summit registration, click here.
Look out for more upcoming coverage of the NAR 2023 Prediction Summit.
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