Americans looking to buy a home next year can expect less competition, more homes to choose from, and the highest average mortgage rates in nearly two decades. Here’s what they can’t expect: A widespread price drop that would bring relief to budget homebuyers.
That’s the key takeaway from Realtor.com’s 2023 real estate forecast, released on Wednesday. Home price declines “may not happen as quickly as some expected,” said Danielle Hale, Realtor.com’s chief economist. Prices will increase in the first half of 2023 and are likely to fall or remain flat in the second half of next year, she told CBS MoneyWatch.
“We expect 2023 to be higher for the full year,” Hale said. “Buyers who want to buy may have to wait a bit.”
The real estate market will soon turn the page in 2022, a year that saw not only rising house prices but also exploding mortgage rates. Especially some cities – like Boise, Idaho; and Austin, Texas – saw price increases in the double-digit percentage range. The rising cost of home ownership has deterred many aspiring buyers who have opted to continue renting instead.
Home prices fell in many areas in late 2022, but mortgage rates continued to rise. The average interest rate on a 30-year fixed-rate mortgage was around 6.6% this week, more than double where it started the year.
Realtor.com expects mortgage rates to rise even further early next year as the Federal Reserve continues to raise its benchmark interest rate. Mortgage rates could reach as high as 7.4% in the first half of 2023 before leveling off at around 7.1% in the second half, the company said. Factoring in increases in home prices and interest rates on loans, the typical monthly mortgage payment next year will be about $2,430, up 28% from this year, Realtor.com predicted.
The rapid rise in prices has hampered many prospective buyers. In a recent survey conducted by LendingTree, nearly half of respondents said they put off major decisions, either renting for long periods or putting off major home renovations.
Mortgage rates have risen so rapidly this year that they have made it difficult for buyers to figure out how much home they can afford, Hale said. Interest rates are unlikely to fluctuate as much in 2023, she said.
“More stability will make it easier for buyers to set the right budget,” she said. “And that should help encourage people to get back into the housing market.”
Largest metropolitan areas
Home prices are likely to rise in the country’s 100 largest metropolitan areas, the Realtor.com report said. Expect 10% hikes in Grand Rapids, Michigan; Portland, Maine; Providence, Rhode Island; Spokane, Washington and Worcester, Massachusetts.
Higher prices are likely to keep many potential homebuyers away, causing rental prices to rise 6.3% and homes sold to fall 14%, Realtor.com said. However, the housing stock — the number of homes for sale — is expected to increase by nearly 23% over the next year, potentially offering a wider choice of homes for those who can afford to buy.
Of course, all of those predictions could change based on how the Federal Reserve handles its fight against inflation over the next month and early next year, Hale said. The Fed hassix times this year, and with each increase, mortgage rates have gone up. Hale and other economists expect the Fed to raise interest rates again next month, but perhaps not as much as previous hikes.
“The housing market has borne the brunt of the Fed’s attempt to control inflation,” said Sean Black, CEO of mortgage lender Knock, in his company’s 2023 housing forecast. “Sellers still have the advantage in most of the country’s largest metro areas, and many will continue to favor sellers well into 2023.”