Whether 2022 has been a roller coaster year for the housing market2023 should bring a painful but necessary real estate hangover.
At the national level, a a growing number of experts and companies predict that US home prices will fallwith some expecting low single-digit declines, while others expect prices to fall in the double digits, perhaps even more than 20%.
Keep in mind, however, that during the pandemic housing frenzy from early 2020 to late 2022, the the nation’s median home price has risen more than 41%so even if the most pessimistic forecasts come true, they should not erase the historic price gains seen over the past two years.
The U.S. housing market is going through what Federal Reserve Chairman Jerome Powell has called “difficult correction” and one “reset“as it comes off the tail of a fueled pandemic frenzy”real estate bubble.” In its fight against record inflation levels throughout 2022, the Fed has made a series of aggressive borrowing rate hikes, resulting in a spike in mortgage rates that has spooked or frightened investors. market buyers.
Even though mortgage rates have fallen slightly in recent weeks, economists expect higher rates to continue to dampen sales through 2023. Some, however, say the market needs this correction to reach a healthier balance between sellers and buyers – as well as healthier affordability.
All of this, of course, depends on how fair local markets are.
In Utah, due to its strong jobs economy, experts predict that the state’s housing market will see some turbulence in 2023, but come out strong next year.
“Hang on. 2024 will be better,” Jim Wood, one of Utah’s leading housing experts, told the crowd gathered at the Grand America Hotel in Salt Lake City for the Salt Lake Board of Realtors’ 2023 housing forecast on Friday. .
What will happen to the Utah real estate market?
Wood, Ivory-Boyer Senior Fellow at the University of Utah’s Kem C. Gardner Policy Institute, detailed his forecast report commissioned by the Salt Lake Board of Realtors, explaining why he still feels optimistic about real estate even though 2023 won’t be a “celebratory year.”
“2023 will be difficult for sales. It’s going to be tough on real estate agents. It’s going to be tough for homebuilders,” Wood said. He expects buyers and sellers to “step back and wait for the dust to settle”, with many stuck at low 3% mortgage rates that have helped plunge the country’s property market into a tizzy. a frenzy in 2020 and 2021.
Reluctant sellers and overpriced buyers, Wood said, will mean 2023 will mark a year of declining home sales. After seven years of sales in Salt Lake County averaging 18,000 homes, high prices in 2023 will mean sales will not top 13,000, he predicted, and will likely be between 11,000 and 12. 000.
Will Utah Home Prices Go Down?
The West was ground zero for the pandemic housing frenzy and was also one of the first regions to see the prices of the real estate advertisements are reduced that the market corrects.
In Utah, house prices have started to decline, after peaking in May, when the median sale price for homes in Salt Lake County was $565,600. After the next seven months, the median price fell 14% to $485,829, erasing month-over-month percentage increases until “eventually turning negative 2.1% in December,” wrote Wood in his report.
How far will they fall? Utah Housing Experts disagree on the extent of the drop in house pricesthough they remain confident that 2023 will not bring a full-blown crash like 2007, and that Utah’s strong jobs economy will still largely insulate it from any negative impact of a recession.
Wood has a more optimistic view.
Utah will experience “minor year-over-year price declines in the first and second quarters of 2023, but prices will begin to stabilize in the third and fourth quarters,” he said.
Wood’s research colleague at the Kem C. Gardner Institute, Dejan Eskic, is more bearish, predicting Utah home prices will fall 9% year-over-year in 2023. dips, he expects prices to drop somewhere in the middle to low teens, depending on interest rates.
As for interest rates, Wood noted that forecasts vary widely, ranging from 5% to 9%, but he personally expects rates to bounce back between 6.5% and 7.5% in 2023.
Additionally, Wood and Eskic predict that Utah’s estimated housing shortage of 31,000 units will continue to keep home prices high even if the state sees price declines, so they expect that Utah’s Housing Affordability Crisis remain a persistent problem price on over 75% of Utahns to afford the home at the state’s median price.
Is there a real estate bubble?
Powell, the Fed Chairman, did indeed call it a “housing bubble” of pandemic frenzy, but he and other pundits have all always said it’s not like 2007 and 2008.
In his report for Utah, Wood wrote that the recent price spike is “highly unlikely to represent a real estate bubble”, although he added, “We don’t know if a bubble exists until it does not burst”. He quoted Alan Greenspan, an economist and former chairman of the Federal Reserve, who defined a housing bubble as a prolonged period of falling house prices.
“Such a decline is extremely unlikely in Utah” in 2023 and 2024, Wood wrote.
Wood also said that “2023 is not 2008,” when it comes to house prices, noting that “very few desperate, jobless homeowners face foreclosure…They can step back and wait for the dust settles”.
As a result, Wood predicted that the price declines that have tumbled since May will level off by the third quarter of 2023, and the annual median selling price for 2023 will likely be “within a few percentage points one way or another.” another from 2022″.
“Worst-case,” Wood added, “prices down about 5%; best-case, prices equal to 2022.”
Will US home prices fall in 2023?
Economists, consulting firms and other experts all have different predictions as to how much house prices will contract.
“The price forecast for this year (is) somewhat uncertain,” Lawrence Yun, chief economist for the National Association of Realtors, told the crowd at the Salt Lake Board of Realtors on Friday.
Yun said the price drop range will likely depend on the region. High-cost areas like San Francisco, he said, will see a 15% drop in prices. The Midwest, he said, will likely see “minimal price increases.”
Cities with high job growth like Boise and Salt Lake City are harder to predict, he said, because affordability issues prevent first-time buyers from entering the market.
“So it’s really hard to say, but I think it will be minimal negative or positive negative,” Yun said. “Or if it’s a bit more significant declines, a 10% decline, take advantage of that because in 10 years you’ll see much better conditions.”
Overall, Yun predicted U.S. home sales would fall 6.8% in 2023 from 2022, and he expects home prices to rise just 0.3%. %, essentially a stability.
Here’s what other organizations and companies are predicting:
- real estate agent.com predicts that house prices will rise another 5.4% in 2023, while mortgage rates will average 7.4%.
- Freddie Mac predicts that US home prices will decline only a slight 0.2%, with an average mortgage rate of 6.4%.
- red fin predicts median U.S. home sale price to drop 4% in 2023
- Capital saving predicts that 2023 will be the “worst year for sales since 2011” and expects house prices to fall 6% this year, leading to a peak-to-trough decline of around 8% to 10%.
- Moody’s Analytics expects U.S. home prices to fall 10%, or 15% to 20% in a recession, Fortune reported.
- John Burns Real Estate Consulting now expects US home prices to fall 20% to 22%, Fortune reported, based on the assumption that mortgage rates persist at nearly 6% throughout the year.
Real estate predictions 2023: ‘Terrible consolidation’
Redfin CEO Glenn Kelman predicted during a Jan. 4 episode of Barron’s Live that the real estate market, especially with regard to real estate agents, will experience a painful constriction in 2023.
“There is going to be terrible consolidation,” he said, although he added that he thinks ultimately “it will be good for the industry.”
In 2020 and 2021, when Congress was writing COVID-19 stimulus checks, Kelman said “real estate diversified in interesting ways” because those stimulus checks “allowed people to experiment with real estate.” .
But now those days of crazy buyer demand and frenzied seller activity are over, and realtors outnumber active listings.
In 2022, Redfin itself suffered two rounds of layoffs. Compass announced a third round of layoffs on Thursday, according to The real deal.
“So hopefully the industry is close to the right size and things can improve from here,” Kelman said. “I don’t think that has happened yet.”
Best buyer balance
In its December 2022 monthly report, real estate agent.com said its monthly housing data showed a housing market that continued to cool, with the number of homes for sale up 54.7% from the same period last year.
The increase in inventory, coupled with listing price growth falling below 10% for the first time in a year, “offers benefits for homebuyers,” Realtor.com said in its report, ” because they may have more options and more time to make a home buying decision.
However, “prices are still significantly higher and homes are selling faster than pre-pandemic 2019 levels,” noted Daniel Hale, chief economist at Realtor.com.
“Although demand has slowed from a year ago, pushing house price growth into single-digit territory for the first time in 12 months, moderating house price growth may encourage further growth. buyers to return to the market in the coming months, and can also be good news for sellers who want to sell and buy at the same time.”