Home buying forecast: Trends to know in 2023

by Tina Sewell ([email protected]) 2,829 views 

The housing market has seen extreme highs and lows this year. Fluctuating home prices and mortgage rates are primarily attributed to inflation, fears of a recession, and the U.S. Federal Reserve’s economic policy. Ever-changing factors make the 2023 housing market challenging to predict. Here’s our forecast; it may surprise you.

To fight record inflation, the Federal Reserve steadily increased federal funds rates in 2022, leading mortgage rates to follow suit. Finance company Freddie Mac notes that the average rate on a 30-year fixed mortgage more than doubled to 6.49%. (The pandemic brought record-low interest rates to around 3%.)

Realtor.com predicts mortgage rate increases into early 2023, closing the year at 7.1%. We believe mortgage rates will continue to rise as the Federal Reserve continues to mediate the effects of inflation. There’s good news — interest rates will likely level out and remain at around 7% on average. Remember, that’s lower than the 7.76% average rate seen in 30-year mortgages since 1971.

This year’s economic factors and spiking mortgage rates have effectively corrected the housing market boom we saw in 2020 and 2021. The market will likely continue to cool in 2023, and home prices may drop. The Case-Shiller National Home Price Index shows that home prices were down 2.2% between June and September of 2022, the first monthly home price decline since 2012.

Home prices will likely continue to fall in 2023 due to what Forbes calls “pressurized housing affordability.” The pandemic housing boom caused a 40% increase in home prices, but those steep prices and intense competition among buyers have stunted demand for housing into 2023. This trend of slowed demand and high interest rates is forcing some home sellers to lower their asking prices. Forecasts predict the median price for existing U.S. homes will drop around 4% from $379,100 to roughly $368,000 next year.

Home sales will likely continue falling. Real estate authority Redfin predicts home sales will fall by about 16% in 2023 to around 4.3 million homes, the lowest level since 2011, following the Great Recession. The trend of inflation, rising mortgage rates and the looming threat of a recession could deter potential buyers in 2023.

Tina Sewell

In your search to purchase a home, consider your financial situation and future needs. As the housing market is rapidly readjusting, there is still good news for potential buyers. Instead of waiting for more favorable mortgage rates, speak with a mortgage lender to understand your credit score and get pre-approved for a mortgage loan to help you shop for a home within your budget. Remember, too, that mortgage rates are still below the historical average 30-year mortgage rate.

Are you looking to sell? You may have to try harder to attract buyers. You may need to lower the price of your home to accommodate buyers coping with the increasing mortgage rates. If your home has been sitting on the market, consider lowering your home price in tandem with the rising interest rates.

Tina Sewell is branch manager at Rock Mortgage in Fayetteville. She has more than two decades of mortgage lending experience. More information is available at RockMortgageLending.com. The opinions expressed are those of the author.