The 2022 housing market has been defined by two key things:
inflation and rapidly rising mortgage rates. And in many ways, it’s put the
market into a reset position.
As the Federal Reserve (the Fed) made moves this year to try
to lower inflation, mortgage rates more than doubled – something that’s never
happened before in a calendar year. This had a cascading impact on buyer
activity, the balance between supply and demand, and ultimately home prices.
And as all those things changed, some buyers and sellers put their plans on
hold and decided to wait until the market felt a bit more predictable.
But what does that mean for next year? What everyone really
wants is more stability in the market in 2023. For that to happen we’ll need to
see the Fed bring inflation down even more and keep it there. Here’s what
housing market experts say we can expect next year.
What’s Ahead for Mortgage Rates in 2023?
Moving forward, experts agree it’s still going to be all
about inflation. If inflation is high, mortgage rates will be as well. But if
inflation continues to fall, mortgage rates will likely respond. While there
may be early signs inflation is easing as we round out this year, we’re not out
of the woods just yet. Inflation is still something to watch in 2023.
Right now, experts are factoring all of this into their
mortgage rate forecasts for next year. And if we average those forecasts
together, experts say we can expect rates to stabilize a bit more in 2023.
Whether that’s between 5.5% and 6.5%, it’s hard for experts to say exactly
where they’ll land. But based on the average of their projections, a more
predictable rate is likely ahead (see chart below):
That means, we’ll start the year out about where we are
right now. But we could see rates tick down if inflation continues to drop. As
Greg McBride, Chief Financial Analyst at Bankrate, explains:
“. . . mortgage rates could pull back meaningfully next
year if inflation pressures ease.”
In the meantime, expect some volatility as rates will likely
fluctuate in the weeks ahead. If we see inflation come back under control, that
would be good news for the housing market.
What Will Happen to Home Prices Next Year?
Homes prices will always be defined by supply and demand.
The more buyers and fewer homes there are on the market, the more home prices
will rise. And that’s exactly what we saw during the pandemic.
But this year, things changed. We’ve seen home prices
moderate and housing supply grow as buyer demand pulled back due to higher
mortgage rates. The level of moderation has varied by local area – with the
biggest changes happening in overheated markets. But do experts think that will
The graph below shows the latest home price forecasts for
2023. As the different colored bars indicate, some experts are saying home
prices will appreciate next year, and others are saying home prices will come
down. But again, if we take the average of all the forecasts (shown in green),
we can get a feel for what 2023 may hold.
The truth is probably somewhere in the middle. That means
nationally, we’ll likely see relatively flat or neutral appreciation in 2023.
As Lawrence Yun, Chief Economist at the National Association of Realtors (NAR),
“After a big boom over the past two years, there will
essentially be no change nationally . . . Half of the country may experience
small price gains, while the other half may see slight price declines.”
The 2023 housing market is going to be defined by mortgage
rates, and rates will be determined by what happens with inflation. The best
way to keep a pulse on what experts are projecting for next year is to lean on
a trusted real estate advisor. Let’s connect.