2023 Housing Market Forecast: What Buyers and Sellers Need to Know

CEO Khai Intela
After the intense housing frenzy of the past few years, the housing market is expected to slow down in 2023. The surge in mortgage rates in 2022 has already begun to affect home sales transactions,...

After the intense housing frenzy of the past few years, the housing market is expected to slow down in 2023. The surge in mortgage rates in 2022 has already begun to affect home sales transactions, and this slowdown is projected to continue. While this may tip the housing market balance away from sellers, it won't necessarily make it a buyer's bonanza. Costs will remain high, impacting affordability at a time when budgets are tight. The 2023 housing market could become a "nobody's-market," challenging both buyers and sellers.

Realtor.com® 2023 Forecast for Key Housing Indicators

  • Mortgage Rates: Average rates are expected to be 7.4% with a year-end rate of 7.1%.
  • Existing Home Median Price Appreciation (Y/Y): A growth of 5.4% is projected.
  • Existing Home Sales (Y/Y | Annual Total): A decline of 14.1% is expected.
  • Existing Home For-Sale Inventory (Y/Y): An increase of 22.8% is anticipated.
  • Single-Family Home Housing Starts (Y/Y | Annual): A decrease of 5.4% is predicted.
  • Homeownership Rate: 65.7% is the estimated rate for 2023.
  • Rent Growth: Rent is expected to increase by 6.3%.

Housing Market Image Source: Unsplash

Home Sales Retrench Further

In recent years, existing home sales have been on the rise, but 2022 saw a decline due to the increase in mortgage rates. This trend is likely to continue in 2023, with a projected decline of 14.1% in home sales. The combination of high home prices and mortgage rates will limit the pool of eligible buyers.

Growth Softens, but Prices Continue to Advance

Home prices have been steadily increasing, reaching record highs in 2022. However, the growth rate is expected to slow down in 2023, with a projected appreciation of 5.4%. As mortgage rates rise, homebuyer purchasing power will decline, resulting in higher monthly costs for financing a home.

For-Sale Inventory is Expected to Increase

The inventory of homes for sale is expected to grow in 2023, with an estimated increase of 22.8%. This gradual growth in inventory is driven by slower market conditions and the turnover of homes. However, it's important to note that the inventory in 2023 is still expected to fall short of the average in 2019.

Rent Growth is Expected to Continue

Rent growth has been on the rise for the past 13 months, and while it may slow down, it's expected to continue. Limited supply and excess demand contribute to the upward pressure on rent growth. The national forecast for rent growth in the next 12 months is 6.3%, ahead of home price growth.

Affordability Makes or Breaks Home Searching in 2023

Affordability is a crucial factor for homebuyers in 2023. The combined impact of income, mortgage rates, and home prices will determine housing affordability. Although the market may favor buyers to some extent, affordability challenges remain, especially for first-time homebuyers.

What Buyers and Sellers Need to Know

For buyers, affordability will continue to be a top priority. Cross-market shopping is expected to increase as buyers search for more affordable options. Additionally, buyers should explore all options to get the best mortgage rate and understand the terms before making a decision.

Sellers may face more competition in the market, longer sale timelines, and more negotiation with buyers. Setting reasonable expectations and understanding the current market conditions will be key to successful selling. Sellers should consider making necessary repairs and being flexible on timing and pricing.

What Renters Can Expect

Renters will experience both pros and cons in the rental market. Rent growth is expected to slow down, but overall rent levels will reach a new high in 2023. Renters who are considering buying a home should carefully evaluate market and rental trends. The decision to buy or rent should be based on factors such as length of tenure and financial considerations.

Remember, local market predictions may differ from national trends, so it's important to stay informed about your specific market conditions.