If 2022 was a rollercoaster year for the housing market, 2023 is expected to bring a painful but necessary real estate crisis.
Nationally, a growing number of experts and firms are predicting a decline in US home prices, with some expecting a modest, single-digit drop, while others expect prices to drop by double digits or even more than 20%.
But keep in mind that the nation’s median home price rose more than 41% during the pandemic housing frenzy from early 2020 to late 2022, so even the most pessimistic projections aren’t going to erase the historic price. achievements during the last two years.
The U.S. housing market is emerging from the tail end of a “housing bubble” that fueled pandemic fury in what Federal Reserve Chairman Jerome Powell called a “difficult correction” and “reset.” In the fight against record inflation levels through 2022, the Fed has raised a series of aggressive borrowing rates, which has translated into a spike in mortgage rates that is driving or scaring buyers out of the market.
Although mortgage rates have fallen slightly in recent weeks, economists expect higher rates to continue to dampen sales through 2023. But some say the market needs this correction to achieve a healthier balance between sellers and buyers, and a healthier one. affordability.
All this, of course, depends on how fair the local markets are.
As Utah continues to have a strong job economy, experts predict the state’s housing market will experience some turbulence in 2023, but remain strong next year.
“Hang in there. 2024 is going to be better,” Jim Wood, one of Utah’s leading housing experts, told a crowd Friday at the Grand America Hotel in Salt Lake City for the Salt Lake Council of Realtors’ 2023 housing forecast.
What will happen to Utah’s housing market?
Wood, a Senior Fellow at the University of Utah’s Kem C. Gardner Policy Institute, detailed a forecast report commissioned by the Salt Lake Board of Realtors, explaining that he still feels optimistic for real estate, even if it’s not until 2023. “holiday year.”
“2023 will be difficult for sales. It will be difficult for estate agents. It’s going to be tough for homebuilders,” Wood said. He expects buyers and sellers to “stand back and wait for the dust to settle,” many of them locked into the low, 3% mortgage rates that helped fuel the nation’s housing market in 2020 and 2021.
Reluctant sellers and buyers with prices falling, Wood said, 2023 will be a year of declining home sales. After a 7-year average of 18,000 home sales in Salt Lake County, the high prices of 2023 will mean sales will not exceed 13,000, and will likely range 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 listing prices drop as the market corrected.
Home prices in Utah have started to fall from their peak in May, when the median sale price of Salt Lake County homes was $565,600. Over the next seven months, the median price fell 14% to $485,829, erasing monthly rate increases “until it finally hit minus 2.1% in December,” Wood wrote in his report.
How much will they fall? While Utah housing experts disagree on how much home prices will fall, they are confident that 2023 will not bring a 2007-like crash and that Utah’s strong job economy will still largely insulate it from any negative effects of the recession.
The tree 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 begin to stabilize in the third and fourth quarters,” he said.
Dejan Eskic, Wood’s fellow researcher at the Kem C. Gardner Institute, is more bearish, predicting a 9% year-over-year decline in Utah home prices in 2023. mid and low juniors depending on interest rates.
As for interest rates, Wood noted that forecasts range widely from 5% to 9%, but he personally expects rates to rise to 6.5% to 7.5% in 2023.
In addition, both Wood and Eskic predict that Utah’s estimated housing shortage of 31,000 units will continue to keep home prices high even if the state sees some price declines, so Utah’s housing affordability crisis is likely to be a persistent problem with prices above 75. they expect it to remain a problem. % of Utahns buying the state’s median home.
Is there a housing bubble?
Fed Chairman Powell has indeed called this pandemic frenzy a “housing bubble,” but he and other experts have all consistently said it’s nothing like 2007 and 2008.
In his report for Utah, Wood wrote that “it is highly unlikely that the recent price increase represents a housing bubble,” though he added, “We don’t know if a bubble exists until it bursts.” He cited economist and former Federal Reserve Chairman Alan Greenspan, who defined a housing bubble as a prolonged decline in housing prices.
“Such a decline in Utah is highly unlikely” in 2023 and 2024, Wood wrote.
Wood also said that “2023 is not 2008” when it comes to housing prices, adding that “very few, desperate, unemployed homeowners are facing foreclosure … They can sit back and wait for the dust to settle.”
As a result, Wood predicted that price declines, which have been falling since May, will stabilize in the third quarter of 2023, and that the annual average sales price for 2023 will likely be “within a few percentage points one way or another in 2022.”
“Worst-case scenario,” Wood added, “prices fall by about 5%; best-case scenario, prices are flat in 2022.”
Will US Home Prices Fall in 2023?
Economists, consulting firms and other experts have different predictions about how much home prices will fall.
“Price projections for this year are somewhat uncertain,” Lawrence Yun, chief economist for the National Association of Realtors, said Friday at the Salt Lake Board of Realtors meeting.
The margin of price cuts will likely depend on the region, Yun said. High-cost areas like San Francisco will see a 15% price drop, he said. The Midwest will likely see “minimal price increases,” he said.
Cities with strong job growth like Boise and Salt Lake City are harder to predict, he said, because affordability issues keep first-time buyers from entering the market.
“So it’s really hard to say, but I think it’s going to be minimal negative or negative positive,” Yun said. “Or if there are slightly more meaningful declines, 10% declines, use them because you’ll see better conditions in 10 years.”
Overall, Yun predicts that US home sales will decline 6.8% in 2023 from 2022, and he expects home prices to rise only 0.3%, or essentially flat.
Here’s what other organizations and firms are predicting:
- Realtor.com predicts that home prices will still increase by 5.4% in 2023, while mortgage rates will average 7.4%.
- Freddie Mac predicts that US home prices will decline by just 0.2% with an average mortgage rate of 6.4%.
- Redfin predicts that the median home sales price in the US will fall 4% in 2023
- Capital Economics predicts 2023 will be the “worst year for sales since 2011” and expects house prices to fall 6% this year, down 8% to 10% from the peak.
- Fortune reports that Moody’s Analytics expects U.S. home prices to decline 10% from the peak, or 15% to 20% if a recession occurs.
- John Burns Real Estate Consulting now expects U.S. home prices to fall 20% to 22%.
2023 Real Estate Predictions: ‘Terrible Consolidation’
Redfin CEO Glenn Kelman predicted on the Jan. 4 episode of Barron’s Live that the real estate market will experience a painful contraction in 2023, especially when it comes to real estate agents.
“It’s going to be a terrible consolidation,” he said, though he added he believed it would ultimately be “good for the industry.”
In 2020 and 2021, as Congress wrote the COVID-19 stimulus checks, Kelman said “real estate diversified in an interesting way” because those stimulus checks “allowed people to experiment with real estate.”
But now, the days of wild buyer demand and frenzied seller activity are over, and real estate agents are outpacing active listings.
In 2022, Redfin itself had two rounds of layoffs. Compass announced its third round of layoffs on Thursday, according to The Real Deal .
“So hopefully the industry is close to the right size and things can only improve from here,” Kelman said. “I don’t think it’s happening yet.”
Better buyer balance
In its December 2022 monthly report, Realtor.com said monthly housing data showed a housing market that continues to cool, with the number of homes sold up 54.7% compared to the same period last year.
Realtor.com noted in its report that rising inventory, along with list price growth falling below 10% for the first time in a year, “offers some positives for homebuyers, as they may have more time to make more choices. decision on the purchase of a house.”
However, Realtor.com chief economist Daniel Hale said, “prices are still significantly higher and homes are selling faster than pre-pandemic levels in 2019.”
“While demand has softened compared to last year, pushing house price growth into single-digit territory for the first time in 12 months, moderation in house price growth could encourage more buyers to return to the market in the coming months. Good news for sellers looking to sell and buy at the same time.”