Six experts look at real estate in 2023
If “hot” was the word I overused to describe the US housing market in 2021, tepid to icy might better describe how the overall market has fared this year.
The pandemic housing market recovery, which saw home prices rise 40% over a two-year period, began to slow in the second half of the year as mortgage rates more than doubled from the start of the year.
While the Federal Reserve has sought to rein in decades-high inflation with year-round interest rate hikes, rising mortgage rates have contributed to increasingly mismatched expectations between buyers and sellers. Homes remained on the market for months as sellers continued to price homes at prices buyers could not afford. Contracts were cancelled, ordering prices were lowered and inventory levels plummeted.
After surpassing 7% in October, mortgage rates have fallen steadily over the past five weeks, which may provide some relief to buyers but may not make up for still-high asking prices.
So, what is the future for the housing market in 2023? We spoke to six experts for their predictions:
Federal Reserve and Mortgage Rates
The Federal Reserve raised its main short-term interest rate by half a percentage point on Wednesday, a smaller hike than the previous four interest rates, as inflation showed signs of abating.
The Fed also noted that the economy will grapple with slower growth, higher unemployment and higher inflation in 2023.
Weak growth usually leads to lower long-term interest rates, including mortgage rates, says Mike Fratantoni, chief economist at the Mortgage Bankers Association.
“The housing market has certainly welcomed the recent decline in mortgage rates,” he said. “This decline reflects market expectations of a near-peak for short-term rates, as well as growing indications that the United States is heading into a recession next year.”
Innovations in real estate financing
Housing finance has reached an inflection point, says Yannick Ratcliffe, vice president of the Center for Housing Finance Policy at the Urban Institute.
She expects to see innovation accelerate with lenders, start-ups, advocates, researchers and policymakers actively pushing around what’s possible in mortgage financing.
“We’re seeing new pilots and programs around alternatives in credit scoring, artificial intelligence, climate adaptation, manufactured housing, and more,” she says. “Not only does the industry see problems with inequality, but many players are also actively expressing commitments to closing the racial homeownership gap.”
Ratcliffe also expects to see increased use of adjustable-rate mortgages, which accounted for 12% of all applications in November, up from 3.3% in November 2021.
“Prospective homebuyers should not be afraid of this financial tool,” she says. “Its use has long been popular, and the regulatory reforms put in place after the Great Recession have greatly mitigated its risks.”
The latest in the housing marketsMortgage rates, home prices and affordability
No “Foreclosure Tsunami”
Foreclosures result from two simultaneous triggers, says Odita Koshy, deputy chief economist at First American Financial Corp.: a lack of ability to pay, which leads to late payments, and a lack of equity in the home.
With enough equity, the homeowner has the option to sell the home or leverage those equity to weather a temporary financial setback. The opposite—lack of equity in the home without a financial setback leading to delinquency—will not end up again in foreclosure.
Homeowners have very high levels of real estate equity to take advantage of today, Kochi says, providing a cushion to withstand potential price drops, but also preventing housing distress from turning into foreclosures.
“In fact, if defaulted homeowners were asked to solve a delinquency problem, given their equity reserves, involuntary sales are much more likely than foreclosures,” she says. “While we can expect the number of foreclosures to drift upward as the labor market slows and house prices fall from their peak, the result is likely to be more than a trickle of foreclosure.”
The housing stock will remain low
Chronic shortages of inventories were the main driver of price gains during the pandemic-era housing boom, and will be a mainstay of prices through 2023, says real estate appraiser Jonathan Miller, who prepares the Douglas Elliman Monthly Real Estate Report. to New York City.
“Inventories have piled to the sky in housing downturns in the past,” says Miller. “Consumers are tied to the lower rates at which they refinanced or purchased homes during the boom. Oversupply is not the story for 2023 because, even with modest inventory listing growth, price drops should be kept to a minimum.”
Redfin expects about 4.3 million home sales in 2023, fewer home sales than in any year since 2011 and down 16% year over year.
Low housing prices
While there won’t be a wave of foreclosures, home prices will drop in 2023, says Taylor Marr, deputy chief economist at Redfin.
Marr expects the median home sale price in the U.S. to drop about 4% in 2023. Even with prices down 4% year-over-year, home prices will be much lower in 2023 than they were before the homebuying boom, though. As he said.
“Taking into account prices and mortgage rates projected next year, the typical homebuyer’s monthly payment will be about 63% higher in 2023 than it was in 2019, just before the pandemic began.”
Home prices will fall the most in pandemic boomtowns, Marr says, while markets in the Midwest and Northeast will hold up better.
Prices are expected to drop further in pandemic immigration hot spots like Austin, Texas, Boise, Idaho, and Phoenix, as well as expensive West Coast cities. Meanwhile, housing markets in the relatively affordable Midwest and East Coast metro areas, especially in the Chicago area and parts of Connecticut and northern New York, will hold up relatively well.
“These areas tend to be more stable than the expensive coastal areas, and they haven’t warmed as much during the home-buying frenzy of the pandemic, which means they also don’t have great distances to fall,” he says.
New home construction prospects
Single-family housing starts are set to record a decline on the calendar in 2022, the first such decline in 11 years, despite a persistent structural deficit in housing in the United States, according to the National Association of Home Builders.
Homebuilding sentiment, as measured by the NAHB/Wells Fargo HMI, has fallen for 11 months in a row, indicating a continued contraction in homebuilding in 2023.
“Single-family home construction will eventually drive a recovery in housing and the overall economy in 2024 as interest rates decline on a sustainable basis, returning demand to the housing market for sale,” says Robert Dietz, chief economist for the National Association. home builders.
Dietz also expects multi-family construction to slow in 2023, after a very strong year in 2022. Multi-family home construction, which is built for more than 95% rent, is very strong in 2022 as mortgage and housing interest rates increase Offered for sale decreased terms of affordability.
“However, there are approximately 930,000 apartments under construction, the highest total since January 1974,” he says. “Higher unemployment, an oversupply of apartments, higher vacancy rates and slowing rent growth will slow multi-family construction in the coming year.”
Commercial-to-residential conversions will remain more talk than action, according to Mark Norman, associate dean of the Shack Real Estate Institute of New York University’s School of Professional Studies.
“We’ve lived with the pandemic for nearly three years, but that time is still not enough to transform ownership, financing and organizational systems to transform underutilized office space,” he says. “We may be seeing the beginnings of conversions, but most buildings will remain in limbo due to long-term commercial leases and the continuing high cost of financing.”
Swapna Venugopal Ramaswamy is USA TODAY’s housing and economics correspondent. You can follow her on Twitter @SwapnaVenugopal and sign up for the Daily Money newsletter here.
#experts #real #estate