Who you ask determines whether and how much home prices will decline. According to Redfin, prices will decline by 4% in 2023. Mr. Gonzalez of Keller William predicts a 10% slide from peak to trough. The National Association of Realtors predicts that prices will remain static.
What happens next year may have a lot to do with where you reside. Prices in places such as San Francisco, Phoenix, and Las Vegas may fall noticeably, while prices in other cities such as Chicago, Milwaukee, and Pittsburgh may soar.
According to Zillow, property prices in Phoenix, a market that has drawn investors and cash buyers, were down 4.5 percent from their peak in June, but still up 60 percent from where they were in February 2020. “The market is terrible when compared to last year,” said Laura Coughanour, owner of Century 21 Arizona West. “However, if you look back a few years, this is how a more regular market looks.”
How Do Interest Rates Work?
Mortgage rates are impacted by the Federal Reserve’s operations, while they are not directly linked to them. The Federal Reserve raised the federal funds rate at a slower pace in December than it had earlier in the year. While interest rates are likely to climb further in 2023, situations may alter.
Even Fed Chair Jerome H. Powell does not have a crystal ball, saying during a December press conference, “I don’t believe anyone knows whether we’re going to have a recession or not, and if we do, whether it’ll be a deep one or not.”
Some real estate analysts predict that mortgage rates will begin to decline in 2023, maybe in the second half of the year. Mortgage rates, according to Lawrence Yun, chief economist for the National Association of Realtors, have already peaked and will linger around 6%, or slightly lower, in 2023. “That might allow purchasers who have been priced out to re-enter the market,” he says.
However, interest rates do not fluctuate in a vacuum, and they are not the only thing house purchasers consider. “Five percent mortgage rates don’t fix the affordability concerns,” said Mr. McBride of Bankrate.com, who added that a bad economy might lead to a slow year in the housing market. “People do not buy properties when they are concerned about their job stability.” Can New Homes Be Built?
For a decade, America has not constructed enough houses. According to Freddie Mac, the US was lacking 3.8 million housing units towards the end of 2020, when the housing boom was just getting started. While single-family house development began to pick up during the epidemic, builders pulled back in 2022, with housing starts down 16 percent in November 2022 compared to the same time last year, and building permits down 22 percent, according to U.S. census statistics.
“The pipeline is effectively decreasing,” said Robert Dietz, chief economist for the National Association of House Builders, who predicts that single-family home starts would decrease another 15 to 20% in 2023 before beginning to recover in 2024.
The consequences might be felt broadly if inventory continues punishingly low and home prices remain high. “My anticipation is that we’ll see an increase in the number of young adults who live with family, which is now one out of every five 25-34 year olds,” Dr. Dietz stated.
Renters in the New Year
According to a Rent Cafe survey from October, more Americans — about 44 million families Now rent than at any previous point in the prior half-century. They found themselves at the mercy of a relentless market, with full open houses and, in certain places, bidding wars, throughout 2021 and the first part of 2022. Renters in New York City got lease renewals with eye-popping rent hikes, often as high as 40 or 50 percent – a startling turn of fortune, especially for those who had survived the pandemic’s initial year in the city, when rentals plunged. The typical rent in Manhattan will hit $4,000 per month for the first time in May 2022.
“Renters have been pushed to their breaking point,” said Kenny Lee, an economist at StreetEasy.
The national picture was likewise bleak, with national asking rents exceeding $2,000 per month for the first time in May 2022, according to Redfin.
Nonetheless, the market has been progressively cooling for some months. Rents fell by the most in three months from the beginning of September to the end of November 2022, according to Apartment List, which began recording such statistics in 2017.
According to Apartment List, the national median rent is currently $1,356 per month. Renters will have more alternatives than they have in a long time when new housing units join the market and competition decreases.
According to Dr. Dietz of the National Association of Home Builders, rental building was up about 18 percent from January to November 2022 compared to the same time in 2021, but construction is likely to decline dramatically in 2023. Currently, 932,000 units are under construction across the country, the most since December 1973.
“We’re going to see approximately as much building in a year come on line over the next 12 months as we’ve seen at any time in the previous 40 years,” said Igor Popov, head economist at Apartment List.
The construction boom in New York City may also continue in the coming years. According to official statistics provided by StreetEasy, the city issued about 59,000 permits for new housing units in the first half of 2022, nearly double the number issued in 2021. The rise was primarily attributable to developers hurrying to place shovels in the ground before a program providing tax advantages in return for building affordable homes ended.
“As these developments break ground, New Yorkers will see more cranes in the sky,” said Mr. Lee of StreetEasy.
It remains to be seen how many of those units be developed as rentals, given high loan rates, high building costs, and a 2026 deadline for the complexes to be finished in order to qualify for the tax cut.