2023 Real Estate Forecast
Several factors are at play and are influencing the current real estate market. Because inflation numbers are improving, and the FED’s rate increase was lower than prior months, many buyers are taking advantage of lower mortgage rates. These rates dropped below 7% over the last two months.
According to the California Association of Realtors (CAR), the demand for housing in California fell dramatically as interest rates impacted affordability. Home sales fell to 237,740 units in November, the lowest since the Great Recession. Across the state, the median price has adjusted downward in year over year numbers. This is the first time the median sale price has come down over the last 30 months.
CAR expects the market to remain bumpy in the first months of the year, perhaps worsen, before it gets better. However, pending sales are growing slightly as an indication that the pace of declines should soften. They expect the market to begin moderating as it reaches what they think is the bottom.
The FED has set a 2% rate as a healthy inflation level and it is currently at 7.1%. At the same time, the November number is the lowest it has been in 12 months. Because of a 5% increase in wages, even while inflation is cooling, CAR expects the FED to continue using the prime rate to cool the market. Until inflation proves to be on a sustained downward path, we can expect FED increases over the coming months.
The Commerce department released a report which showed consumer spending declined 0.6% in November. Savings are at all-time lows and credit card balances are up 15%. At the same time, people are more optimistic about the future than they were earlier in the year.
The National Association of Realtors (NAR) expects mortgage rates and home prices to hold steady in 2023. However, they expect home sales to lag because of a lack of inventory. If interest rates, which have been falling for the last 6 weeks, continue to remain below 7%, many believe the market will stabilize. Just as buyers are waiting out the market, home sellers too, seem to be waiting to list their properties for sale.
NAR Chief Economist Lawrence Yun said: “I see many hopeful signs for next year.” He expects home sales to fall again in the first quarter of 2023. We are closing out 2022 with home prices up 9.6% in the US. This should flatten in 2023, but the NAR forecast for 2024 shows it back up 5%. It seems that the factor keeping home values up is that there is still more demand than there is supply of available housing.
“After a big boom over the past two years, there will essentially be no change nationally” in home prices in 2023, Yun said.
Mortgage rates have been consistently dropping over the last 6 weeks, after a 7.08% high. Yun thinks mortgage rates have peaked. He forecasts rates to settle around 5.7% by the end of 2023. Chief Economist Danielle Hale of Realtor. com believes homes will still increase in value 5.4% during 2023.
That is what is so interesting about today’s real estate market. Interest rates can drop further, but inventory is low and so home prices can rise. If interest rates rise, home prices can move down. When interest rates settle, more buyers will return to the market, which will increase home values. In the end the monthly payment may still be the same. What you save in borrowing costs is offset by higher prices.
Ultimately, the question isn’t about when is a good time to buy, but rather, whether you want to buy. Some forecasters are calling for a readjustment in expectations for 2023. Mortgage applications rose 0.9% in the week ending December 16th, following a 3.2% jump in the previous week which was the highest in 3 months. This data from the Mortgage Bankers Association is proof that many buyers are coming to this realization.
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