NewsAsking Prices and Mortgage Rates May Fall In 2023, but by How...

Asking Prices and Mortgage Rates May Fall In 2023, but by How Much?

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The previously red-hot housing market slowed down considerably in 2022. The year started aggressively, as home prices increased 6.2% from January through June. However, prices declined slightly in July and August and remained steady through October (the last month with official data). Overall, home prices increased more than 5.0% between January and October 2022. This is still a relatively high appreciation rate, but it marks an abrupt slowdown from the previous two years.

The U.S. housing market has cooled down significantly since June, and the National Association of Realtors recently released data indicating that home sales in November were at their lowest level since November 2011. With home sales declining to an 11-year low, will home housing prices fall in 2023?

What to Expect in 2023

Many prominent firms released their 2023 price forecasts, with some also making predictions for mortgage rates. Experts have mixed opinions, but the general consensus is that prices will either stagnate or decline modestly this year. Here is a small sampling of recent 2023 housing forecasts:

  • National Association of Realtors (NAR): In December, NAR predicted that the housing market would “normalize”, predicting a 0% change in home prices. Mortgage rates will end 2023 at about 5.7%.
  • Freddie Mac In October, Freddie Mac predicted a modest 0.2% decline in home prices, with an average mortgage rate of 6.4%.
  • Fannie Mae The government enterprise forecasts a small 0.5% drop in home prices in 2023. For mortgage rates, the firm expects mortgage rates to average 6.5% in Q1, 6.4% in Q2, 6.2% in Q3, and 6.0% in Q4.
  • CoreLogic The January 2023 CoreLogic HPI Forecast expects home prices to decrease 2.8% from November 2022 to November 2023.

There are two main takeaways from the small collection of forecasts listed above. First, the economists from the four firms expect home prices to either stagnate or fall only modestly. Prices have essentially stagnated since the summer. If the economists’ forecasts are correct, the current trend will continue through the end of 2023.

Secondly, mortgage rates will likely remain quite elevated and stay above 6.0% for most or all of the year. As of January 5th, the average 30-year fixed-rate mortgage was 6.48%. Current forecasts predict that mortgage rates will decline slowly throughout the year and end 2023 at or near 6.0%.

The Implications for Buyers and Sellers

Despite stagnating or modestly declining prices, the national housing market will still present challenges for buyers and sellers. For buyers, a modest price decline of 1.0% or less won’t do much to ease affordability constraints, considering that prices are already unaffordable. High mortgage rates also present a problem, although there will be an opportunity to refinance in future years if rates dip down again.

For buyers, one upside to the current market is that home sales continue to fall and are at an 11-year low. There is a decreasing amount of competition per home, indicating that buyers are more likely to secure a deal below asking price than they were at the beginning of 2022.

Since experts don’t expect housing prices to fall much in 2023, sellers can still cash out at a high point even though home sales and demand continue to fall. The main downside for sellers is that if they sell and wish to purchase a new home and take out a new mortgage, they will also have to face higher interest rates. Prospective buyers and sellers should consult a real estate agent in their area for advice if they wish to purchase or list a home this year.

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