Will US Home Prices Fall in 2023?
Is the next year of the homebuyer, and will US home Prices Fall in 2023?
Many speculators encountered volatile housing market conditions during the last quarter of 2022.
Homeowners knowingly list their homes for more than they’re worth — often against realtor advice.
Property prices have soared.
As real estate is hyperlocal, prices vary across the United States.
Let’s take a quick look at Florida, a state that Noble Sky International is most invested in in 2022.
The data is from Zillow, and we are looking at 3 bed 2 bath single family homes.
A property in Jacksonville, FL, was listed for $208K in January 2020.
By July 2022, it rose to $288K (38.46%) and is now at $280K (-2.77%).
Looking at a property listing on 2 December 2022, a home in Miami, FL 33138, sold in Sept 2018 for $862,800, is now listed for $2,090,000.
That’s a whopping 142.2% increase.
Zillow’s oldest listing has been on the market for 259 days and sold for $165,100 in May 2021.
Since Feb 2022, it has been listed for $300,000 (81.81%) without any buyers.
Home listings may sit on the market longer, as fewer buyers can afford to purchase property with higher mortgage rates.
Inventory will rise, not because more sellers are selling their homes but because buyers may need to qualify for a mortgage.
In January 2021, Covid-era policies from the Federal Reserve lowered 30-year mortgage rates to a record low of 2.65%.
Homeowners who lock in those rates will think twice before selling their properties or even downsizing into a much smaller home – it could cost them substantially more.
After months of wild fluctuations, homebuyers, sellers, owners, and renters are desperate to find where real estate prices, inventories, sales, and mortgage rates are heading in 2023.
With the current situation, many homeowners would rather stay put and weather the storm than move to a new home.
Will US Home Prices Fall In 2023?
The limited supply of available homes for sale outweighed robust homebuying demand in March 2022, raising home prices to a record level.
While the real estate ecosystem continues to slow, the dramatic swings in the housing market are expected to diminish.
Home and rental prices will likely increase next year, but the increases will be much more modest than this year’s massive increases.
Homebuyers and renters will likely be disappointed in terms of financial relief.
The good news is that they won’t get whiplash, either.
Mortgage rates will stay high, which continues to be a stumbling block for first-time buyers.
A higher mortgage rate has slowed home sales since buyers now pay significantly higher housing loans for a home at the same price.
It is advisable to borrow more as it is becoming increasingly difficult to afford a home.
Yet everywhere you turn, you are told how terrible it is to have debt.
The smartest choice for your finances is to sink as much cash into your home downpayment as possible so you can reduce your mortgage debt.
That is if you can afford it.
While home and rental prices are falling from their peaks over the summer, overall, they’re still rising year over year.
Since buyers can’t afford towering home prices and high mortgage rates, it will be a challenging year for homebuyers, home sellers, and the housing market.
When our partners use Noble Sky International’s cash-buying strategy, they won’t have to pay interest on a loan to invest in an investment property.
A mortgage-free home means investors are not affected by interest rate increases.
What Homebuyers, Sellers, And Renters Can Expect In 2023
Home prices aren’t expected to crash next year, defying expectations.
Simply put, higher interest rates have crippled the housing market.
Higher interest rates make it more difficult for first-time homeowners to afford homes.
Based on Realtor.com’s predictions, prices will increase by 5.4% in 2023 compared with last year.
That’s still going to hurt—but not as much as the double-digit increases seen during the COVID-19 pandemic.
Median monthly mortgage payments are expected to be about 28% larger than this year and twice as large as they were in 2021.
While other forecasts call for price declines, the reality may differ from what we expect.
Sellers want to keep their asking prices unchanged after watching their neighbors make money a few months ago.
The price sellers are willing to accept may differ from what buyers can pay due to higher mortgage rates.
Home price growth continues to slow and could dip slightly over the next few years, with a correction in the market that may last through 2025.
Rent Prices Will Keep Going Up In 2023
Renters who are thinking of buying a home next year should think twice and consider their monthly payments as mortgage rates rise.
Renters won’t fare any better nationally, and rents are expected to rise by 6.3% year-over-year in 2023.
Rents may increase less than the double-digit jump experienced earlier in 2022.
Currently, rental property demand is dwindling, but people will be forced to rent when they cannot afford to buy a home.
Many renters fled expensive cities during the pandemic to quieter, less-populated communities.
Back then, landlords slashed their prices when renters migrated out of the cities.
Prices skyrocketed again when tenants returned to cities seeking rentals.
There might be more room for rents to grow in 2023 in urban areas than in the suburbs.
Mortgage Rates Might Hold Steady
Soaring mortgage rates have ground the housing market to a halt, forcing many would-be buyers to stay put or rent for longer than anticipated.
Many plan to jump back into the homebuying fray once rates come down, but they may have to wait longer than they had hoped.
Realtor.com predicts that mortgage rates will average 7.4% in 2023, trickling down to 7.1% by year’s end.
Mortgage rates are expected to remain high following a similar upward trajectory as the Federal Reserve hikes its interest rates to slow inflation.
There’s more work for the Fed before inflation shows signs of cooling off.
Federal Reserve interest rate hikes are designed to cool the housing market and tame inflation.
Getting Started in Real Estate Investment
If you’re a beginner at investing, you may wonder if this is the right time to buy, wait, or start investing.
The number of homes for sale will inevitably surge when people can’t afford to pay their mortgages and foreclosure happens.
The silver lining for investors may be the misfortune of others, as there will be more homes for sale.
The inventory of existing homes which excludes newly built construction, is expected to spike by 22.8%.
While those extra homes are sorely needed, they’re still far below the supply in a more normal housing market.
The number of existing homes forecast for sale in 2023 is still 15% less than in 2019—when there was already a national housing shortage of 3.84 million.
According to a recent Realtor.com study, experts estimate a deficit of over 5 million homes in 2023 in the United States.
The demand for newly constructed housing is not keeping up with the supply as buyers are more cautious in an environment with higher costs.
Despite the shortage of homes, builders are predicted to build fewer houses in 2023 because of shrinking customer pools caused by rising interest rates.
Residential construction is anticipated to fall by about 5.4% year-over-year.
Developers can’t build homes at prices buyers can afford as land costs, materials, and labor costs are too high.
Homes sales are likely to decline because buyers cannot afford them.
Sales are anticipated to fall 13.8% year over year in 2022 and decrease by 14.1% in 2023.
There will be just 4.53 million sales next year, the fewest transactions since the depths of the Great Recession in 2012.
The upcoming year could be quieter for real estate transactions than usual because of higher prices and mortgage rates.
Renters are already stretched thin, with rising rents along with inflation.
Many people cannot save up for a down payment on a home of their own, forcing them to rent instead.
The homeownership rate in America is expected to hold steady, ticking down to 65.7% in 2023 from 65.8% in 2022.
Those who do sell will still do well.
The average homeowner will see their equity rise by $25,650 in 2023.
Hyperlocal prices in cheaper cities may rise even more as people from higher-priced markets move to more affordable areas.
A severe recession could upend these predictions.
Typically during a downturn, the Fed cuts its interest rates, which could cause mortgage rates, prices, and home sales to fall.
Some buyers will jump in as soon as rates drop, but others will avoid making a large purchase during a recession when their jobs are uncertain.
Some people will be laid off or lose their jobs, which could mean they won’t be able to afford to buy a house.
If home prices drop, it could increase demand for homes, but a more severe recession would mean fewer sales.
Are A Lot of Foreclosures Coming?
According to real estate data analytics firm ATTOM Data Solutions’ midyear 2022 U.S. foreclosure market report, foreclosures were up roughly 1% in the third quarter from last quarter and 167% from a year ago.
A key difference is that many homeowners ( even those struggling to make payments now) have considerable home equity as their house is worth more than what they owe.
A higher home value isn’t impacting me for a few key reasons.
Homeowners all over the country are sitting pretty due to rising property values.
In the summer of 2021, home prices were up an astounding 19.7% from the previous year.
For homeowners who see their home value fluctuate during that time – some for a whopping $200,000 more than what they bought it for.
For context, in 2020, that figure would’ve been closer to $100,000 with today’s intense housing market.
But the news would not have homeowners jumping for joy if they owned a single property.
Most homeowners with young school-going children would be reluctant to uproot and switch neighborhoods and school districts.
Since they are not selling my home, they can’t profit from it.
Just as the value of home soared, other homes were also exponentially more expensive than they were a year or two ago.
Even if they sell their home and buy another one, they would need to pay a premium for another home with a high mortgage rate.
The new home could be a costlier home purchase elsewhere.
Tap Into Your Home Equity
Since home values are up on a national level, so is home equity.
Home equity represents the portion of your home you own outright.
If you owe $175,000 on a mortgage, but your home value is estimated at $300,000, that’s $125,000 of equity that you can potentially borrow against as needed.
Higher home values may be helping many people right now, but for a regular American homeowner, a higher home value means a property tax hike.
If they are not selling the property, they are not making any profit!
When the value of a property falls below the outstanding balance on the mortgage, it’s called negative equity.
That means you owe more on your home than it’s worth.
While it’s a seller’s market, in some metro areas, homeowners have been increasing owing more than their homes are worth.
Depending on whether there’s a recession next year or if everyone holds on to their property since they have so much equity – it is unlikely that house prices will fall in 2023 in a dramatic way.
If the mortgage rates remain constant and homeowners do not lose their jobs from the recession, most likely, they will not sell their homes.
Even with a higher equity gain, buying a new home would be costlier and have a higher mortgage rate.
The Federal Reserve will continue to raise rates aggressively if inflation remains stubbornly higher.
Under this scenario, mortgage rates could climb to 8% or beyond in 2023.
When interest rates increase too quickly, economic growth may slow or give way to a recession.
People who lose jobs during deep recessions are more likely to be unemployed.
Mortgage default can occur if homeowners stop making payments, and it can lead to foreclosure.
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