If 2022 was a roller coaster year for the housing market, 2023 is expected to bring a painful but necessary housing hangover.
Nationally, a growing number of pundits and firms are forecasting falling US home prices, with some expecting modest single-digit declines while others anticipate double-digit falls, perhaps even more than 20%.
But keep in mind that during the pandemic housing frenzy from early 2020 to late 2022, the country’s average home price skyrocketed by over 41%. Even if the most pessimistic predictions come true, they are not destined to wipe out the historic price gains seen over the past two years.
The US housing market is going through what Federal Reserve Chair Jerome Powell has called a “difficult correction” and a “reboot” as it emerges from the ending of a pandemic-induced “housing bubble”. In its fight against record inflation in 2022, the Fed launched a series of aggressive hikes in lending rates, leading to spikes in mortgage rates that pushed or deterred buyers.
Even though mortgage rates have fallen slightly in recent weeks, economists believe higher rates will continue to dampen sales throughout 2023. However, some say the market needs this correction to achieve a healthier balance between sellers and buyers – and healthier affordability.
All of this of course depends on how fair the local markets are.
In Utah, due to continued strength in the job market, experts are forecasting that the state’s housing market will experience some turbulence in 2023 but be strong next year.
“Hold on. 2024 will be better,” Jim Wood, one of Utah’s leading real estate experts, told the crowd gathered at the Grand America Hotel in Salt Lake City on Friday for the Salt Lake Board of Realtors’ 2023 real estate outlook.
What will happen to the Utah housing market?
Wood, the Ivory-Boyer senior fellow at the University of Utah’s Kem C. Gardner Policy Institute, detailed his forecast report commissioned by the Salt Lake Board of Realtors and explained why he’s still bullish on real estate even though 2023 may not be a year becomes a “celebratory year”.
“2023 will be tough for sales. It’s going to be difficult for real estate agents. It’s going to be tough for builders,” Wood said. He expects buyers and sellers will “stand back and wait for the dust to settle,” many of whom are locked into low 3% mortgage rates that helped keep the country’s housing market in turmoil in 2020 and 2021 to move.
Hesitant sellers and overpriced buyers, Wood said, will mean 2023 will be a year of slumped home sales. After seven years of selling Salt Lake County, averaging 18,000 homes, the high prices of 2023 will mean sales won’t top 13,000, he predicted, and will likely be between 11,000 and 12,000.
Will Utah Home Prices Fall?
The West was ground zero for the pandemic housing frenzy and was also one of the first areas to see home prices slashed as the market corrected.
In Utah, home prices have declined since peaking in May when the median selling price for homes in Salt Lake County was $565,600. Over the next seven months, the median price fell 14% to $485,829, erasing month-on-month percentage gains until “December finally hit a 2.1% decline,” Wood wrote in his report.
How far will they fall? Utah’s real estate experts are divided on how much home prices will fall, though they remain confident that 2023 won’t bring a full-blown crash like 2007 and that Utah’s strong employment economy will still largely shield it from the negative effects of a recession.
Wood has a more optimistic outlook.
Utah will see modest “year-over-year price declines” in the first and second quarters of 2023, but prices will start to stabilize in the third and fourth quarters,” he said.
Wood’s fellow researcher at the Kem C. Gardner Institute, Dejan Eskic, is more pessimistic, forecasting that Utah home prices will fall 9% year over year in 2023 into the mid-to-low teens, depending on interest rates.
As for interest rates, Wood noted that forecasts vary wildly, anywhere from 5% to 9%, but he personally expects interest rates to rise between 6.5% and 7.5% in 2023.
Additionally, both Wood and Eskic predict that Utah’s estimated housing shortage of 31,000 units will continue to keep house prices high even as the state posts some price declines, so they expect Utah’s housing affordability crisis to remain an ongoing concern , which prices more than 75% of Utahns away from affording the house at the state median price.
Is there a real estate bubble?
Powell, the Fed chairman, has actually called it a pandemic frenzy “housing bubble,” but he and other pundits have all kept saying it’s nothing like 2007 and 2008.
In his report for Utah, Wood wrote that it was “very unlikely that the recent rise in prices represents a housing bubble,” although he added, “We don’t know if a bubble exists until it bursts.” He quoted Alan Greenspan, an economist and former Federal Reserve Chairman, who defined a housing bubble as an extended period of falling house prices.
“Such a decline is extremely unlikely in Utah in 2023 and 2024,” Wood wrote.
Wood also said “2023 is not 2008” when it comes to home prices, noting that “very few desperate, unemployed homeowners face foreclosure… You can step back and wait for the dust to settle.”
As a result, Wood predicted that price declines, which have been falling since May, will stabilize through the third quarter of 2023, and the annual median selling price for 2023 will likely be “within a few percentage points of 2022, one way or another.”
“Worst-case scenario,” Wood added, “price down about 5%; in the best case, prices will be the same in 2022.”
Will US house prices fall in 2023?
Economists, consulting firms and other experts have differing forecasts of how much house prices will fall.
“Price projections for this year (are) somewhat uncertain,” Lawrence Yun, chief economist for the National Association of Realtors, told the Salt Lake Board of Realtors crowd Friday.
Yun has said the margin of the price declines will likely depend on the region. High-priced areas like San Francisco, he said, will see prices drop 15%. The Midwest, he said, will likely see “minimal price increases.”
Cities with strong job growth like Boise and Salt Lake City are harder to forecast, he said, as affordability issues discouraged first-time buyers from entering the market.
“So it’s really hard to say, but I think it will be minimal negative or negative positive,” Yun said. “Or if it’s a little more significant declines, a 10% decline, take advantage of that because 10 years from now you’re going to see much better conditions.”
Overall, Yun forecasts U.S. home sales to fall 6.8% in 2023 compared to 2022, and he expects home prices to rise just 0.3% or essentially flat.
Here are the forecasts from other organizations and companies:
- Realtor.com forecasts that house prices will still rise 5.4% in 2023, while mortgage rates will average 7.4%.
- Freddie Mac forecasts that US house prices will fall only slightly by 0.2%, with an average mortgage rate of 6.4%.
- Redfin forecasts the median selling price of U.S. homes to fall 4% in 2023
- Capital Economics is forecasting that 2023 will be the “worst year for sales since 2011” and expects home prices to fall 6% this year, resulting in a peak-to-trough decline of about 8% to 10% .
- Moody’s Analytics expects U.S. home prices to fall 10% from peak to trough — or a 15% to 20% fall if a recession hits, Fortune reported.
- John Burns Real Estate Consulting now expects US home prices to fall 20% to 22%, Fortune reported, based on the assumption that mortgage rates will remain close to 6% throughout the year.
Real Estate Forecasts for 2023: “Terrible Consolidation”
Glenn Kelman, CEO of Redfin, predicted on a Jan. 4 episode of Barron’s Live that the housing market, particularly as far as real estate agents are concerned, will experience a painful constraint in 2023.
“There’s going to be terrible consolidation,” he said, but added that he believes it will ultimately “be good for the industry.”
In 2020 and 2021, when Congress was writing COVID-19 stimulus checks, Kelman said “real estate is interestingly diversified” because those stimulus checks “allowed people to experiment with real estate.”
But now those days of frenzied buyer demand and frantic seller activity are over, and real estate agents are outpacing active listings.
In 2022, Redfin himself went through two rounds of layoffs. Compass announced a third round of layoffs, according to The Real Deal on Thursday.
“So I’m hoping that the industry has reached the right size and things can get better from here,” Kelman said. “I don’t think that has happened yet.”
Better buyer record
In its December 2022 monthly report, Realtor.com said its monthly housing data showed a housing market that continues to cool, with the number of homes for sale up 54.7% compared to the same period last year.
Rising inventory, coupled with list price growth that falls below 10% for the first time in a year, “offers some benefits for homebuyers,” Realtor.com said in its report, “as they may have more options and more time to buy.” to build a house Decision to buy a house”.
However, “prices are still significantly higher and homes are selling faster than they were in pre-pandemic 2019,” noted Daniel Hale, Realtor.com’s chief economist.
“Although demand has softened compared to last year and pushed home price growth into single digits for the first time in 12 months, a moderation in home price growth could and could encourage more buyers to return to the market in the coming months its welcome news for sellers looking to sell and buy at the same time.”