Will 2023 finally be a good year to buy a house? Here’s what the experts say.

Will 2023 be a good year for a potential buyer? It depends on your location, your income and whether you’re buying or selling, Odeta Kushi, deputy chief economist at First American, told MarketWatch.

Others are less diplomatic. “2023 is shaping up to be a nobody’s market. Neither sellers nor buyers will see meaningful progress,” George Ratiu, head of economic research at Realtor.com, told MarketWatch.

“For sellers, the reality is that the prices they’ve been hoping for over the past few years just aren’t there anymore,” he explained. “For buyers, prices have gone up so much over the past two years that even a 10-20% discount won’t get them a bargain.”

Here’s how experts see the housing market unfolding in 2023:

Good news: More houses for sale

Experts mostly agree that inventory — or the number of homes available for sale — will increase in 2023.

“We will have more inventory than in the past two years,” Ratiu said. But homes for sale stay on the market longer, he added.

Redfin’s
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Deputy Chief Economist Taylor Marr said the typical home has been on the market for about two months now. “There are a lot of houses out there just waiting for a buyer,” he added.

Builders are also putting new homes on the market and do everything possible to boost sales.

In some Western markets, expect “much more inventory than before the pandemic,” Jeff Tucker, senior economist at Zillow
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says MarketWatch.

Markets like Phoenix and Las Vegas, which have seen a sales boom during the pandemic, are experiencing a glut of homes, Tucker said. “There are a lot of houses on the market, and that puts downward pressure on prices,” he added.

In most major markets, inventories are low for several reasons.

“There’s less inventory because homeowners don’t want to give up their ultra-low mortgage rates,” Lawrence Yun, chief economist and senior vice president of research at the National Realtors Association, told MarketWatch.

“Most people refinanced at around 3% in 2020 and 2021,” he added. “Selling and buying a new house means having a 6.5% mortgage rate, so even a drop in house size and price will mean a higher monthly mortgage payment.”

Some owners are also turn to the rental market instead of facing a tough sales environment.

Good news: less competition, bidding wars

Many homeowners won’t remember so fondly the frenzied pandemic days of intense bidding and overspending just to get a deal on a home.

Given the sharp decline in home sales, bidding wars may have become a relic of the bygone pandemic era in 2023.

“Buying conditions … will be unambiguously better for buyers in 2023,” Tucker said, “especially in the first half of the year, compared to the first half of 2022.”

Terms of purchase include the number of homes to choose from, the competition they face for homes, and being forced to go above the list price,” and other ancillary aspects of that, like feeling rushed because every house is bought in a single weekend,” Tucker explained.

Under pressure, many buyers waived contingencies such as financing, appraisal or inspection, he added. These pressures would have eased as the market cooled.

“Because the market has softened so much, all of these buying conditions will be much more favorable for buyers, especially compared to the frantic market conditions in the first half of last year,” Tucker said. “So this is very good news for buyers.”

For example, according to a Fall Realtor.com Surveya growing share of sellers said buyers were asking for repairs to be made following home inspections.

The housing market “is moving away from the hyper-competitive environment where sellers have pretty much made the decisions, to one where buyers have a lot more negociation powerRatiu noted.

Bad News: Mortgage Rates Will Stabilize, But Not Fall That Much

Mortgage rates have skyrocketed over the past year, but expect them to level off and come down slightly, which will be helpful for some buyers.

Rising rates are the housing story of 2022, as the US Federal Reserve reined in an ultra-low rate environment, making mortgages more expensive.

Here’s how rates have jumped over the past year, effectively doubling and even reaching the 7% threshold in November 2022:

“Mortgage rates are very difficult to predict. But there’s reason to believe we’ll see mortgage rates start to stabilize next year as inflation stabilizes a bit,” Kushi said, “which will help affordability and of consumer confidence.

Kushi said the consensus forecast is for rates to end in 2023 at around 6%.

The Mortgage Bankers Association expects rates fall to 5.4% at the end of 2023.

“We’ve seen mortgage rates increase significantly this year, adding roughly between $800 and $1,000 per month more to the monthly payment compared to a year ago,” Ratiu said.

Expect rates to stay high, he added, meaning that if incomes don’t rise as much, then “the cost of financing a home purchase will remain expensive.”

Bad news: house prices will fall in some markets, but will remain expensive

With rates soaring, many potential tenants or buyers are staying on the sidelines, as the finances don’t quite make sense for them to buy. And that is weighing on house prices.

But don’t expect deep discounts or a real estate crash.

Mark Zandi, chief economist at Moody’s Analytics, told MarketWatch that he expects U.S. home prices to fall as much as 10% from peak to trough over the next 2-3 years. That means prices will go down, but keep in mind that they’ve also gone up 40% since the pandemic hit.

“I don’t expect US house prices to crash,” Zandi added. “Of course, if the economy suffers a recession, the decline in house prices will be greater, but even then a crash seems overdone.”

Sales of existing homes fell, which began to put pressure on home prices. According to the NAR, the the median selling price of an existing home has fallen from a high of over $410,000 in June to $370,700 in November.

Ratiu noted that many home sellers have resorted to price drops to sell their homes: “20% of homes listed on Realtor.com saw price drops in November,” he said. “So I expect that to be part of the market in 2023, which is good news.”

Redfin said its stats were more or less the same nationally, but in some markets the price drops are bigger — like more than half of homes.

“Not only are buyers able to bid under demand today, but they are also able to obtain credit from sellers to cover their closing costs, and also pay points to lower their mortgage rates” , Marr said.

So where does the slowdown come in? “The West is facing the biggest house price deceleration and price decline since the peak,” Kushi said. “Specifically Zoom
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markets that have seen the strongest growth during the pandemic.

Zoom markets include Salt Lake City, Boise and other popular second-tier cities where people have moved to work remotely

But while prices aren’t rising per se, they’re still expensive, especially since incomes haven’t risen as much, even amid high inflation in the United States.

According to a Dallas Fed October Reportdespite the strength of the labor market, “a majority of workers are seeing their wages fall even further than inflation”, with a median drop of 8.6% in the second quarter of 2022.

Still, if mortgage rates fall to 6% and house prices also fall, “even if incomes remain flat, that means affordability will improve compared to today,” Kushi said. “So there is evidence that affordability will improve by the end of next year.”

Conclusion: Affordability will improve, but it will still be an unbalanced market

Falling mortgage rates and house prices will make homes slightly more affordable in 2023, but not by much. And at the end of the day, the market will not be in the buyer’s or the seller’s camp.

“Higher interest rates have sucked the power out of sellers,” Marr said, “but buyers don’t need to find this a big win because of how interest rates are still expected to to be. So it’s a bit of an arm wrestle.”

For 2023, Marr has advice for all potential home buyers.

“Keep an eye out for changes in the market, and that includes what’s happening with mortgage rates,” Marr said. “If they went down half a point, that could make the difference in making your monthly payment more affordable.”

And don’t overlook homes that have been on the market longer than usual, either. There may be rough diamonds.

Realtor.com is operated by News Corp subsidiary Move Inc. and MarketWatch is a unit of Dow Jones, also a News Corp subsidiary.

Do you have ideas on the housing market? Contact MarketWatch housing reporter Aarthi Swaminathan at [email protected]