Americans looking to buy a home next year can expect less competition, more home choices and the highest average mortgage rates in nearly two decades. Here’s what they can’t expect: a general drop in prices that would relieve buyers of overpriced homes.
That’s the main takeaway from Realtor.com’s 2023 real estate forecast released Wednesday. The decline in home prices “may not happen as quickly as some have anticipated,” said Realtor.com chief economist Danielle Hale. Prices will be high in the first half of 2023 and will likely fall or remain flat in the second half of next year, she told CBS MoneyWatch.
“We expect that, for the year as a whole, 2023 will be higher,” Hale said. “Buyers who want to buy may have to wait a bit.”
The housing market will soon turn the page on 2022, a year that has seen mortgage rates soar alongside soaring house prices. Some cities in particular – like Boise, Idaho; and Austin, Texas – saw double-digit price increases. The rising cost of home ownership has deterred many aspiring buyers, who have instead opted to continue renting.
Home prices fell in many regions at the end of 2022, but mortgage rates continued to climb. The average interest rate on a 30-year fixed mortgage was around 6.6% this week, more than double what it was at the start of the year.
Realtor.com expects mortgage rates to climb even higher early next year as the Federal Reserve continues to raise its benchmark interest rate. Mortgage rates could reach 7.4% in the first half of 2023 before stabilizing at around 7.1% towards the second half, the company said. Considering increases in home prices and lending rates, the typical monthly mortgage payment next year will be around $2,430, 28% higher than this year, Realtor.com predicted.
The rapid rise in prices has put off many potential buyers. In a recent LendingTree survey, nearly half of respondents said they put off major decisions, either renting for a longer period or postponing major home renovations.
Mortgage rates have risen so quickly this year that it’s been difficult for buyers to figure out how much home they can afford, Hale said. In 2023, interest rates are unlikely to fluctuate as much, she said.
“Having more stability will make it easier for buyers when setting the right budget,” she said. “And that should help encourage people to re-enter the housing market.”
Largest metropolitan areas
Home prices will likely rise in the nation’s 100 largest metropolitan areas, according to the Realtor.com report. Expect 10% increases in Grand Rapids, Michigan; Portland, Maine; Providence, Rhode Island; Spokane, Washington and Worcester, Mass.
Higher prices will likely drive away many potential buyers, leading to a 6.3% rise in rental prices and a 14% drop in the number of homes sold, Realtor.com said. However, housing stock – the number of homes available for sale – is expected to climb nearly 23% next year, potentially providing a wider variety of homes for those who can afford to buy.
Granted, all of those forecasts could change depending on how the Federal Reserve handles its fight against inflation next month and early next year, Hale said. The Fed has raised its benchmark rate six times this year, and with each rise, mortgage rates have also risen. Hale and other economists expect the Fed to raise its rate again next month, but perhaps not as much as previous increases.
“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. advantage in the majority of the country’s largest metros, and many will continue to favor sellers through 2023.”
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