Home sellers should brace for a tough year ahead, with a real estate group predicting that property sales could fall in 2023 as more buyers are sidelined by rising mortgage rates and house prices out of reach.
The number of homes sold will likely plunge 14.1% to 4.53 million homes, the lowest number of real estate transactions since 2012, when the United States was still recovering from the housing crash and the Great Recession, according to Realtor.com’s 2023 Housing Report. The forecasts.
The pandemic has triggered a massive boom in property sales, buoyed by a combination of record high mortgage rates and work-from-home orders from many employers. Since the start of 2020, house prices have jumped nearly 40%, while mortgage rates have more than doubled since the start of the year, a double whammy that has driven many buyers out of the market.
Sellers could feel the brunt of that impact next year, according to new forecasts from Realtor.com.
“High house prices and mortgage rates [will] limit the pool of eligible buyers” in 2023, he said.
Home sales are expected to fall the most in California and Florida. The biggest drop in sales volume will occur in these cities, Realtor.com predicted:
- Ventura, California: a decrease of -29.1%
- San Jose, CA: -28.8%
- Bradenton, Florida: -28.7%
- San Diego, CA: -27.3%
- Palm Bay, Florida: -18.3%
- Los Angeles, CA: -15.8%
- Tampa, Florida: -15.6%
- Tucson, AR: -14.7%
- Fresno, CA: -13.7%
- San Francisco: -13.3%
Possible upside for sellers
If there’s a silver lining for sellers, it’s that the average selling price in the country’s top 100 markets is expected to rise next year by an average of 5.4%, according to Realtor’s 2023 Housing study. .com. The forecasts.
Not everyone’s outlook for home prices in 2023 is so sunny. Some economists are to predict that real estate values could plunge by up to 20% next year due to soaring mortgage rates and economic uncertainty.
Even though Realtor.com predicts rising home prices next year, the pace of escalation represents a slower pace than the meteoric increases of the past two years. Prices will be high in the first half of 2023 but are expected to fall or remain flat in the second half of next year, Realtor.com chief economist Danielle Hale 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.”
High prices will be more dramatic in some cities than others, Realtor.com predicted. The metropolitan areas that could see the biggest increases are:
- Worcester, MA: 10.6%
- Portland, Maine: 10.3%
- Grand Rapids, Michigan: 10%
- Providence, Rhode Island: 9.8%
- Spokane, WA: 9.6%
- Springfield, MA: 8.9%
- Boise, Idaho: 8.7%
- Chattanooga, TN: 8.2%
- Indianapolis, Indiana: 7.8%
- Milwaukee, Wis.: 7.7%
These higher prices could be discouraging for buyers who have already faced significantly higher real estate valuations in 2022. Some cities in particular – like Boise, Idaho; and Austin, Texas — have seen double-digit percentage increases this year.
The rising cost of home ownership has deterred many aspiring buyers, who have instead opted to continue renting. In a recent LendingTree survey, nearly half of respondents said they were postponing major decisions, either renting for a longer period or postponing major home renovations.
Home prices fell in some areas 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.
The combination of house prices and higher mortgage rates in 2023 could push the typical monthly mortgage payment in 2023 to $2,430, 28% higher than this year, Realtor.com predicted.
Mortgage rates have risen so quickly this year that it’s sometimes 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.”
With buyers staying away, the number of homes available for sale is expected to climb nearly 23% next year. The advantage for buyers is a greater variety of choices, while sellers will face more competition.
Granted, all of those forecasts could change depending on how the Fed 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.
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