Home Price Alert: What Will Happen to the Housing Market in 2023?

  • Housing prices continue to grow, even as lending rates hit their highest level in years.
  • Some suspect next year may offer would-be home buyers the price relief they’re hoping for, especially should a recession hit.
  • Others maintain the supply of homes in the country is still too limited for prices to drop.
Housing market - Home Price Alert: What Will Happen to the Housing Market in 2023?

Source: MIND AND I / Shutterstock.com

With current estimates that home prices will likely only continue to grow through this year, many are hoping next year may finally yield a cooled housing market.

Housing remains a point of contention for economists. Despite perhaps the worst buyer’s market in decades, home values are only climbing. In fact, the median price of homes sold in Q1 2022 was $428,000, the highest figure ever, even while 30-year fixed mortgage rates peer over 6%. It’s an unusual phenomenon, reflective of the current constrained state of housing in the U.S.

The U.S. simply does not have enough available homes to meet demand. This year the country has had a roughly two-month supply of available homes for sale at any given time. Historically, the figure is closer to five or six months.

When the pandemic hit, construction of homes fell dramatically and has yet to ramp back up. At the same time, the rock-bottom interest rates enacted during the quarantine resulted in pent-up demand for housing, that, even after lending rates quickly came back up, has yet to subside.

Add in global supply-chain slowdowns on many of the materials used in home construction, like steel and lumber, and it’s not hard to see why home values have hung strong even as contractionary winds blow strong.

There are signs that housing is already in the cooling process, however. A record number of sellers have lowered their asking prices in recent months. However, the average sale price continues to rise month-over-month, reflecting the sticky nature of housing prices currently.

With further rate hikes likely on the way, many are looking at next year to see housing prices finally ease.

Will the Housing Market Ease Next Year?

Depending on who you ask, the housing market has a wide array of possible trajectories. Some believe the pinched home supply will only continue to put upward pressure on prices, with rising mortgage rates only serving to slow its acceleration.

Indeed, according to Redfin economists, mortgage rates alone likely won’t be enough to make prices drop. They predicting between 0%-4% home price growth in the spring of 2023 compared to this year. For context, year-over-year home sale prices have jumped over 10% every month since the summer of 2020.

On the other hand, some expect the housing market to experience a modest crash. That’s especially true if the economy enters a recession. Current estimates project U.S. gross domestic product (GDP) will drop for the second straight quarter this year, which would meet the technical requirements for a recession. In the case of an economic downturn, unemployment and real wages both take a turn for the worst. Even more than high mortgage rates, this would likely kill much of the demand for homes. In this circumstance, it’s possible the demand for homes would be rebalanced to such a degree that the housing market experiences a general decline in value.

That is all to say, the future is still largely uncertain. Even as market forces point toward lowered home prices, supply and demand still reigns king. Whether housing responds to declining economic conditions agreeably, and whether that change actually ends up being to the benefit of potential home buyers, remains to be seen.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.

Article printed from InvestorPlace Media, https://investorplace.com/2022/07/home-price-alert-what-will-happen-to-the-housing-market-in-2023/.

©2023 InvestorPlace Media, LLC