Housing Market Forecast 2023: It’s Different Than What You’re Hearing

The housing market of 2023 won’t be like any we’ve seen before.

So, let’s talk about what seems likely to happen with housing inventory, home prices, mortgage rates, rental rates, and market conditions. The truth is probably different than what you might’ve heard.  

Full disclosure, I’m not some kind of wizard that has a crystal ball looking into the future. So, please take what I say with a grain of salt and at face value.

I’m just a student of life and a real estate nerd sharing my thoughts openly with you.  Time will reveal if this is an accurate assessment or not. 

Either way, I hope this post will give you fresh perspectives and insights you can use to make intelligent decisions moving forward.   

Housing Supply Forecast

The housing inventory levels in 2023 will rise, but it will take time.  For reference, a healthy housing market averages around 2m-2.5m active listings nationwide.

Currently, the United States has roughly 1.28 million homes for sale, as shown in this graph.  The graph is courtesy of Trading Economics and the National Association of Realtors. 

How quickly we’ll see the housing shortage gap close will depend on how many homeowners decide it is a suitable time for them to sell. 

Look, I know people love talking about timing the real estate market and making a fortune like they’ll be the next wealthy real estate mogul.

But the reality is that most people buying and selling homes have more to do with lifestyle decisions than purely monetary ones.

Like where they are in life when they decide to sell a house or buy a home.  

As much as some people like to view real estate through an economic lens, like its commodity, that’s simply not the case for most of us, and that’s the truth. 

For instance, let’s consider some common reasons people move. Then, let us know in the comments if you can relate to any of them.

For example, common motivations to move include: getting married, having kids, moving to a better school zone, so their kids can get a better education, job relocation, divorce, health reasons, hardships, and being closer to their family, just to name a few. 

For these life-changing reasons and the reasons we’ll discuss in a moment, housing inventory could reach around 1.8m- 2m active listings nationwide by the end of 2023.  Because time is always in motion and people’s lives are constantly changing.

Of course, an argument can be made that there are better times to buy or sell a house when looking at a graph that spans many years. The issue with that is long-term graphs rarely align with where we are in life when we have the opportunity to buy or sell a house.

Real estate speculators seem to overlook a critical fact affecting most of us.  They fail to consider the opportunity cost of time.  

To be fair, some investment gurus might discuss strategies to hedge risk to ensure reasonable return rates that could outperform the real estate market.  It’s certainly possible.  For that to work, the investment savants also assume a minimum of 3 details that might not apply to everyone. Details like: 

1.  You can maintain the roof over your head whether you’re renting or owning a home.
2.  You have the available cash to invest.
3.  You are comfortable with the risk profile of the investment tactics.

You might’ve noticed I didn’t mention anything about having the knowledge to make it all work because I’m sure they have a course they are happy to sell you.

Look, money comes and goes. Time does not. Time is the one thing we can’t get back.  So, we must make the most of our time in each moment and do what is right for us for the reasons important to us when we have the opportunity. 

What that decision looks like to you is your choice.  Just make it a good one that you’re happy with.  

Home Prices Drop - But not Too Drastically

Ok, so let’s take a look at home prices.  Because of the tight supply of homes and the uptick in mortgage interest rates, the housing market will inevitably correct. 

Nationwide, we’re probably looking at between 15-25% off the peak prices we saw in June 2022 within 7-18 months of this post.  The timeframe and rate of depreciation remain unchanged from the previous content I created earlier in 2022. 

For reference, the median home price in the US peaked in June 2022 at around $414,000.

Look, I’m not asking you to take my word for what might happen. Instead, I’m asking you to stay true to yourself by taking a step back from all the rhetorical chaos you might see.  So that you have clarity when thinking through your decisions and what makes sense to you or not. It’s your life. You live it how you want.

Yes, some real estate markets will see steeper drops, yet others might not be affected as much.  This is normal as people seek affordable housing and better employment opportunities as their lives change.    

I realize this might sound scary or confusing initially, and that’s ok. That’s why we’re having the conversation now. What I’m saying is not meant to scare you but to prepare you if these likely realities manifest. 

At the same time, it is vital to remember real estate markets move in cycles.  Some cycles are up, some are down, and some are in the middle.   

In my assessment, average home prices must come down to align with what an average home buyer can afford in a given area.  But, unfortunately, this fundamental, and others, went way off the proverbial rails over the past couple of years. 

We are now enduring the cooling-off period of an over-heated real estate market.  The housing market we’ve seen over the past few years was propped by a historically and artificially low federal funds rate.  

As we now know, that resulted in unnaturally low mortgage rates, easy access to credit, and a surge in consumer spending.  All of this was when the world endured unprecedented supply chain issues resulting from COVID. 

Given the extremely high demand for goods and services with limited availability, in part, that is a substantial cause of the highest inflation rate in the United States since 1982.

To combat this, the FED, who previously seemed asleep at the wheel, has since woken up.  In their haste to reduce the inflation rate, they are now dramatically and aggressively raising the federal funds rate with varying economic consequences.  

Unfortunately, the impact of the FED’s policies is not pleasant for most of us. 

To say it another way, it’s almost like the FED is similar to an inexperienced driver that lost control of the driving wheel and started veering off the road. 

Instead of regaining control in a measured methodical way to steadily get back on track, they are jerking the wheel in massive over-correction in too short of a time. 

Realistically, the FED should’ve started slowly hiking the Fed Funds Rate by least by Jan 2021, if not sooner. 

Now, they are overreacting to get back on the road.  Hopefully, the FED doesn’t yank so hard that they crash the American economy into a painful recession on the opposite side of the road.

We know inflation remains stubbornly high, and the Fed aims to reduce inflation to around 2%.  

The FED has a complex task that requires delicate maneuvers to reduce inflation while minimizing the risk of a complete economic recession.  How well they pull that off, we’ll see. 

It’s important to note when the Fed adjusts the Federal Funds Rate, it does not always correlate directly with mortgage rates. 

However, in 2022, we did see a correlation between Fed rate hikes having a pronounced impact on mortgage rates.  Whether that will be true in 2023 remains to be seen.  

Mortgage Rates Peak 

Currently, mortgage rates are hovering in the 7’s. However, it’s no secret that the FED might continue increasing the Federal Funds Rate in 2022 and 2023.  This might result in higher mortgage rates.

As of writing this post, the Federal Funds Rate is floating between 3%-3.25%, as seen in this Trading Economics chart. However, suppose the FED’s 2022 performance indicates what they might do in 2023. In that case, we might see the Federal Funds Rate peaking around 5.25% to 5.5% before moderating.   
source: tradingeconomics.com

Right now, people are talking about mortgage rates in the 7’s. However, over 2023 we might see mortgage interest rates cresting in the 9’s or possibly 10s if the FED keeps this up.  So sometime in 2023, it seems likely that people could be having a water cooler chat about wishing mortgage rates were back in the 7s.

If that sounds bad, consider this.  Now, I am probably dating myself a bit here, and that’s ok because I’m doing this for you. However, the message and mission are far more important than I am and my sometimes sensitive ego.

But depending on how old you are, you might remember that we’ve seen this happen in years past. For example, in 1990, the average mortgage rate was around 10.13% before adjusting to about 6.94% in 1998. 

Even in the 2000s, mortgage rates kicked off at around 8.04% in 2000.  Later by the end of 2009, in the wake of the Great Recession, mortgage rates were in the high 5’s.

So, the relatively anemic mortgage interest rates over the past few years are not normal.  If you want to go deeper into mortgage rate history, then check out the historic 30-year fixed rate mortgage charts from 1971-2022 on Freddie Mac or Fred Economic Data.

I don’t know about you, but that made me curious about the historic average mortgage rate.  So, I did the math to make it easy for you, and if I’m being honest, just because I’m a bit nerdy.

So the 51-year average mortgage interest rate in the United States is approximately 9.08% as of writing this post. So it stands to reason we could see that happen again. 

Source: Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MORTGAGE30US, October 19, 2022.

Rental Rate Forecast

Some people say they’ll stay where they are to ride out the downturn in the housing market and wait for better mortgage rates.  Ok, that might work, but it might not.  Let me explain.

There is no wrong answer here.  It’s your life, so you decide what is best and right for you.

Will home prices and mortgage interest rates eventually come down?  Of course, they will at some point. So it’s not a question of “if it will happen” but “when it will happen.” 

Which brings up the next question, where do you live now? 

Do you own a home, or do you rent?  Depending on your answer, waiting might be an excellent option for you, or it might not.  This goes back to the opportunity cost of time discussed earlier in this post.

If you own a home and don’t have any plans to move, your job is secure, and all is well in your life, then waiting might be a perfect solution.  If that’s the case, stay where you are, love life, and do your thing. 

But consider this for one moment…  When home prices come down, and they will, the value of your home will also be lower than the current pricing.  I’m not sure if that will affect your life plans, but it is worth knowing. 

If you’re renting, consider this.  According to the Federal Reserve of Dallas, rental rates are projected to increase by 5% to 7% before moderating later in 2023.

Zumper reports that the national median rent price for a 2-bedroom property is around $1,845 – which they say is an all-time high. 

Suppose someone you know could buy a house but wants to wait it out for a couple of years.  Why not?  Let the housing market balance; hopefully, mortgage rates will come down, and the economy will be in a better place by then.  Makes sense to me.  But what will it cost you? 

The rollercoaster of real estate cycles never sleeps.  When an opportunity presents itself to one group, it often takes opportunity from another.  Very seldom do we have a balanced real estate market where good opportunities exist for most people simultaneously.

While the housing market likes to repeat itself in one form or another. What does not repeat itself is where you are in your life at the time when you’re making the decision to buy or sell a house.  

People gossiping and speculating about the housing market is all fun and games until it’s your turn – then it just got real.  Then, the need for trustworthy real estate information and education becomes essential.   

The truth of real estate is this… The best time to buy or sell a home is when the time is right for you, for the reasons important to you in your life. The one thing that none of us can ever get back is time.  So please, stay true to yourself and don’t lose yourself in the chaos of life.

Real Estate Market Shifts to a Buyer's Market

So, what might the 2023 housing market look like?  For the reasons we reviewed in this article and previous content I've created, It seems likely that by the Summer/ Fall of 2023, the real estate market could shift into a buyer’s market. 

It won’t be an easy market for anyone. It’ll have both opportunities and challenges.

So if you’re a seller, review the best pricing tactics, market conditions, and marketing strategies with your Realtor. 

If you’re a buyer, form a winning game plan with your Realtor and Loan officer.  Ask your loan officer about any special mortgage programs they might have if you buy a home now and the mortgage rates decline afterward. 

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Thank you so much for reading this post!  I'm sending you positive vibes everything goes your way! - Andrew Finney

Disclaimer: Andrew Finney, S.0173260, is a real estate salesperson with King Realty Group (KRG) in Las Vegas, NV. Andrew's videos and blog posts are his own and do not necessarily represent the views and/ or opinions of KRG.