Housing Market Predictions 2023 Show that Prices Will Go Up
Will house prices go down in 2023? Depending on who you ask, the forecast for 2023 is mixed. Experts in the housing industry predict fewer buyer demand and lower prices, along with higher borrowing rates. Rate increases, along with a shortage of availability, have pushed many purchasers to the sidelines. Home prices may fall slightly, but not drastically as they did in 2008. Some believe that the housing market will continue to outperform compared to the pre-pandemic.
Here’s when the housing prices will drop. While this may appear to be oversimplified, it is how markets work. Prices drop when demand is met. There is now an excessive demand for houses in several property markets, and there simply aren’t enough homes to sell to prospective purchasers. Home construction has increased in recent years, although they are still far behind. Thus, big drops in housing prices would necessitate considerable drops in buyer demand.
Demand falls mostly as a result of higher interest rates or a general weakening of the economy. Rising interest rates would ultimately need far less demand and far more housing supply than we now have. Even if price growth slows this year, a fall in home prices is quite unlikely. As a result, there will be no fall in house values in 2022; rather, a pullback, which is natural for any asset class. In the United States, house price growth is forecasted to just “moderate” or slow down in 2022 as well as 2023.
By the end of the year, home price growth is anticipated to moderate to around 5 percent. The S&P CoreLogic Case-Shiller National Home Price Index increased 20,4% from a year earlier in April, down from 20,6% the previous month. The Case-Shiller Index is the three-month moving average of the prices of houses sold (i.e. February to April).
While home prices continued to rise at a quick clip at the beginning of the year, the rise in mortgage rates since March makes it doubtful that this trend will continue for much longer. Some would-be purchasers are being priced out of the market, while others are forced to reduce their spending.
Between the first quarters of 2021 and 2022, all 50 states and the District of Columbia saw an increase in housing prices. In today’s housing market of high mortgage rates, buyers are still driving up property prices, leading homes to sell rapidly. During this pandemic, we saw hyperactive buyers make offers without seeing the property and forego contingencies to win bidding wars in the highly competitive housing market. The historically low mortgage rates fueled an increase in demand, particularly among millennials.
However, they are running into a shortage of available housing and now have to face higher rates of close to 6%. Many buyers are still in the hope of finding a home that fits their budget and needs. Despite popular belief that now is not a good time to buy, many home buyers are looking to lock in their monthly housing payments. However, in this hot real estate market, it’s difficult for buyers to find a good deal, especially with the typical asking price rising by double digits.
Although the housing market of 2022 is still expected to favor sellers we appear to be at a tipping point in the housing market, where prices have risen so dramatically that buyers are backing off and home sales are slowing down considerably as compared to last year. House prices rose nationwide in April, up 1.6 percent from the previous month, according to the latest Federal Housing Finance Agency House Price Index (FHFA HPI®). House prices rose 18.8 percent from April 2021 to April 2022.
The previously reported 1.5 percent price change for March 2022 was revised upward to 1.6 percent. The FHFA HPI is the nation’s only collection of public, freely available house price indexes that measure changes in single-family home values based on data from all 50 states and over 400 American cities that extend back to the mid-1970s.
For the nine census divisions, seasonally adjusted monthly house price changes from March 2022 to April 2022 ranged from +0.3 percent in the East South Central division to +2.5 percent in the West South Central division. The 12-month changes were all positive, ranging from +14.1 percent in the Middle Atlantic division to +23.5 percent in the South Atlantic division.
Source: FHFA
U.S. House Price Index Report 2021 Q2
Due to the brisk demand, purchasers have been frantically bidding up the prices of available houses, sending property prices skyrocketing. House prices in all the major local real estate markets continue to rise. The housing market is becoming harder for home buyers. The demand is high, and the supply and inventory are still lacking. The only factor that has changed is that mortgage rates are likely to continue to rise going into the rest of this year.
With inflation intensifying, the average rate on 30-year mortgages jumped to 5.77 percent this week from 5.55 last week, according to Bankrate’s national survey of large lenders. Mortgage rates and inflation go hand in hand. When inflation grows, often interest rates increase also so they can keep up with the value of the currency. If inflation lowers, mortgage rates drop. During periods of low inflation, mortgage rates tend to stay the same or barely change.
Housing Prices Are Rising in 2022: Quarterly Report
U.S. house prices rose 18.7 percent from the first quarter of 2021 to the first quarter of 2022 according to the Federal Housing Finance Agency House Price Index (FHFA HPI®). House prices were up 4.6 percent compared to the fourth quarter of 2021. FHFA’s seasonally adjusted monthly index for March was up 1.5 percent from February
“High appreciation rates continued across housing markets during the first quarter of 2022,” said William Doerner, Ph.D., Supervisory Economist in FHFA’s Division of Research and Statistics. “Strong demand coupled with tight supply have kept prices climbing. Through the end of March, higher mortgage rates have not yet translated into slower price gains, but new home sales have dropped during the last few months, with a significant falloff in April.”
Key Housing Prices Trends
Nationally, the U.S. housing market has experienced positive annual appreciation each quarter since the start of 2012.
House prices rose in all 50 states and the District of Columbia between the first quarters of 2021 and 2022.
House prices rose in all of the top 100 largest metropolitan areas over the last four quarters.
Annual price increases were most significant in Cape Coral-Fort Myers, FL, where prices increased by 41.3 percent.
Prices were weakest in Cambridge-NewtonFramingham, MA (MSAD), where they increased by 9.1 percent.
Of the nine census divisions, the Mountain division recorded the strongest four-quarter appreciation.
It posted a 24.0 percent gain between the first quarters of 2021 and 2022 and a 5.7 percent increase in the first quarter of 2022.
Annual house price appreciation was weakest in the Middle Atlantic division, where prices rose by 14.6 percent between the first quarters of 2021 and 2022.
Top Five States for Yearly Home Price Appreciation:
Florida 29.8 percent
Arizona 27.5 percent
Utah 26.8 percent
Tennessee 25.8 percent
Idaho 25.5 percent
States That Saw The Lowest Yearly Home Price Appreciation:
District of Columbia 6.6 percent
North Dakota 10.4 percent
Alaska 10.5 percent
Louisiana 12.3 percent
Iowa 12.5 percent
Source: FHFA House Price Index Report – 2022 Q1
Will Home Prices Drop in 2023: The Forecast?
Here’s the home price shift coming for the housing market in 2023. Between July 2022 and June 2023, Zillow predicts that U.S. home prices will rise another 7.8% That’s well above the 4.6% average annual appreciation posted since 1987. As of July, inventory remains 54% below the 1.4 million active listings we had in July 2019. As long as inventory remains scarce, it’s unlikely that existing home prices will fall in 2023.
However, this recent Zillow projection is another negative correction. Zillow reduces its year-over-year house price forecast from 9.7 percent to 7.8 percent in response to weaker housing statistics. This is the fourth month in a row that Zillow has issued a negative correction. The regional housing forecast for 2023 is going to vary a lot.
Among the 911 regional housing markets that Zillow economists analyzed, 906 are predicted to see rising house prices between July 2022 and June 2023. Zillow only expects five markets to experience year-over-year declines. The biggest projected decline is 6.4% in Greenville, Miss. In 2023, Zillow predicts that 741 markets will see house price growth of 5% or greater.
While 136 markets are forecasted to see year-over-year house price growth of 10% or greater. That includes markets like Athens, Ga. (10.3% forecasted growth); Durango, Colo. (10.3%); Grenada, Miss. (10.3%); Fort Myers, Fla.(10.2%); and Morristown, Tenn. (10.2%).
Housing Demand Will Outpace the Supply to Push Prices Up
The broader outlook from several housing analysts is that housing demand will continue to surge due to several factors. For e.g; the millennials have aged into their prime homebuying years, and they are now the fastest-growing segment of home buyers. In 2018, millennial homeownership was at a record low but the situation has changed markedly. They are no longer holding back when it comes to homeownership.
According to the National Association of REALTORS’ Home Buyers and Sellers Generational Trends Report, millennials make up the largest share of the homebuying population at 43 percent, the most of any generation – an increase from 37% last year. They are also the most likely generation to use the internet to find the home they ultimately purchase and most likely to use a real estate agent.
The NAR report found that the combined share of younger millennials (23 to 31 years old) and older millennial buyers (32 to 41 years old) rose to 43% in 2021, up from 37% the year prior. Nearly two-thirds of younger millennials, or 65%, located the property they ultimately purchased online, a proportion that steadily declines with older generations. Eighty-seven percent of homebuyers utilized a real estate agent. This percentage was highest among younger millennials (92%) and older millennials (88%).
The study also found that first-time home buying among younger generations is on the rise, with over 4 out of 5 younger millennial home buyers – 81% – purchasing for the first time. Just under half – 48% – of older millennial buyers were first-time buyers. There is a surge of millennial buyers who are maturing into the conventional first-time buyer age bracket. Boomers comprised the highest proportion of house sellers at 42 percent, however, the ratio of millennial sellers has increased from 22 percent to 26 percent over the last year.
Millennials are expected to continue to drive the market in 2022 and the participation of first-time homebuyers and older millennials is widely forecast to be elevated. Hence, the housing prices will not drop in 2022. According to the most recent S&P CoreLogic Case-Shiller Index, the cost of purchasing a single-family house increased by more than 20 percent in April compared to the same month last year. In May, mortgage rates climbed substantially, adding to the expense of purchasing a house; however, these large surges may soon level down.
Inflation, excessive housing demand, and inadequate supply continue to drive up prices. Recent revisions by economists at Realtor.com have increased their 2022 median sales price appreciation projection for existing properties to 6.6 percent from 2.9 percent. Many people have been priced out of the housing market by rising rents and rising mortgage rates, which have risen from an average of just 3.2% at the beginning of the year to 5.81% by mid-June.
This has resulted in a decrease in property sales since more individuals are unable to pay the present high costs. There was a 3.4 percent reduction in May from April and an 8.6 percent drop from the same period last year, according to NAR. Theoretically, home prices should continue to fall for the remainder of this year and into 2023.
For starters, rising borrowing prices make credit more unaffordable. Second, as the economy continues to deteriorate, mortgage lenders are expected to approve fewer applicants. Although the housing market appears to be headed in the wrong direction, there are some bright spots. Economic forecasters, in spite of the recent recession, continue to expect robust demand from purchasers (millennials) and high home price increases in the housing market.
With homebuyers active and supply still lacking, the current trend of home prices will not see a reversal in 2022. In the second half of this year, we will see a gradual shift in the real estate market away from sellers and toward buyers, with a minor rise in the number of properties entering the market. The market is heading to cool off, but house prices will not necessarily fall.
National Association of Realtors (NAR) senior economist and director of forecasting Nadia Evangelou points out that existing home sales have dropped over the last three months while contract signings have slipped in the previous five months. “However, due to seasonality trends, I believe the housing market will continue to outperform compared to pre-pandemic. Keep in mind that June is traditionally the busiest month for the real estate market,” she says.
Despite a sluggish market this summer and waning buyer enthusiasm, we anticipate that home demand will continue to outstrip available inventory. Increasing rental costs should add to this expected development. However, as the number of available homes increases, the demand for housing should decrease owing to affordability concerns.
As a result, we are not on the verge of a housing market crash. The current rate of home price growth is unsustainable, and higher mortgage rates combined with increased inventory will result in slower home price growth but unlikely any price decline (or negative growth).
Sources
https://www.fhfa.gov/AboutUs/reportsplans/Pages/FHFA-Reports.aspx
https://www.zillow.com/research/home-value-sales-forecast-july-2022-31240/
https://www.spglobal.com/spdji/en/indices/indicators/sp-corelogic-case-shiller-us-national-home-price-nsa-index/
https://www.nar.realtor/newsroom/nar-report-shows-share-of-millennial-home-buyers-continues-to-rise
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