Housing Market Predictions For 2023: When Will Home Prices Be Affordable Again? (2024)

Despite being well into the spring homebuying season, the housing market is still experiencing a winter chill.

The national average 30-year fixed mortgage rate increased by 18 basis points in May, while pending home sales were flat and existing home sales sagged in April. A basis point is one-hundredth of one percentage point.

Though the median existing-home sales price edged lower year-over-year for the third consecutive month—a promising sign for home shoppers—experts don’t expect substantial, nationwide price declines anytime soon.

Home prices remain stubbornly elevated, perpetuating affordability challenges for many, especially first-time homebuyers. For one, the nation’s housing supply remains limited—and probably will remain so for at least the near future—due, in part, to those who purchased homes in recent years at record-low interest rates staying put.

Though home prices are not as high as the record prices of June 2022, data suggest that where home prices dip or climb this year remains heavily region-specific.

Housing Market Forecast for June 2023

The buyer-seller stalemate held steady in May thanks to an uptick in mortgage rates and elevated home prices that together continued to perpetuate the housing affordability crisis, as fears of ongoing inflation, bank sector volatility, debt ceiling drama and an impending recession hang in the air.

Mortgage rates remain high partlyas a consequence ofthe Federal Reservevoting to raise its key interest rate by 25 basis points on May 3 in its aggressive efforts to tamp down inflation. The May 3 hike was the central bank’s 10th consecutive interest rate increase since March 2022. A Fed rate hike has an indirect impact on long-term home loans, such as 30-year, fixed-rate mortgages.

Since their May meeting, Fed policymakers have expressed divided opinions on raising interest rates at their upcoming June 12-13 meeting. At one point Fed Chair Jerome Powell suggested the tightening credit environment resulting from the recent bank turmoil would function similarly to a rate hike. Yet, Fed watchers are sensing that recent, stronger-than-expected jobs and personal consumption expenditures data along with still-high inflation could prompt the Fed to move forward with yet another rate hike rather than a pause.

These circ*mstances continue to put a strain on the housing market, which remains a mixed bag.

On the one hand, home shoppers received good news, with the median existing-home sales price declining 1.7% to $388,800 in April compared to a year ago, according to the National Association of Realtors (NAR). This is the third consecutive month of year-over-year national home price declines after a 131-month streak of record increases.

On the other hand, the latest Federal Housing Finance Agency (FHFA) House Price Index (HPI) shows home prices rose 4.3% in Q1 2023 compared to Q1 2022, culminating in the index reaching a record high of 398.0 in March. The FHFA HPI is a collection of home price indices that measures single-family home values across all 50 states and over 400 cities with data extending back to the mid-1970s.

In the wake of already high-priced homes in most areas of the country still rising in value, it’s no surprise that total existing-home sales dipped 3.4% from March to April and are down 23.2% from a year ago, per NAR. However, picking up the slack was new home sales, which recorded an estimated 4.1% monthly increase, according to the U.S. Census Bureau and U.S. Department of Housing and Urban Development (HUD).

“Home sales are bouncing back and forth but remain above recent cyclical lows,” said Lawrence Yun, chief economist at NAR, in a report. “The combination of job gains, limited inventory and fluctuating mortgage rates over the last several months have created an environment of push-pull housing demand.”

Some Experts Foresee a Sluggish Housing Market Recovery

In the meantime, mortgage rates and the overall housing market continue to have their ups and downs.

Mortgage rates were down the first week of May only to rise for the rest of the month, according to Freddie Mac. Yet, even with all the movement, rates remain stuck between 6% and 7%. Rates reached 6.79% on June 1—the highest they’ve been since November 2022—before dipping down again to 6.71% on June 8.

“If current economic conditions persist, with elevated mortgage rates and home prices amid scarce inventory, the market is likely in for a long, slow climb and a few bumps along the way,” said Danielle Hale, chief economist at Realtor.com, in an emailed statement.

One of those bumps includes the new mortgage fee rules imposed by the FHFA. As of May 1, conventional mortgage borrowers who place between 5% and 25% down will pay more in fees—also known as loan-level price adjustments (LLPAs)—than those who put down less than 5%.

Though the Biden-Harris administration revamped the existing mortgage fee rules to make homeownership “more attainable and affordable for more low- and middle-income borrowers” the change has drawn criticism from some housing experts as the higher fees will hit people considered less risky.

While it remains to be seen how the mortgage fee changes will affect home shoppers, mortgage application activity at the moment remains low.

“Since rates have been so volatile and for-sale inventory still scarce, we have yet to see sustained growth in purchase applications,” said Joel Kan, vice president and deputy chief economist at Mortgage Bankers Association.

Considering mortgage rates are currently well over 6%, and 97% of borrowers have mortgage rates below 6%, according to CoreLogic, a significant, sustained uptick in mortgage applications is not likely to materialize anytime soon.

“Dampened affordability remains an issue for interested homebuyers and homeowners seem unwilling to lose their low rate and put their home on the market,” said Sam Khater, chief economist at Freddie Mac, in a press statement. “If this predicament continues to limit supply, it could open up an opportunity for builders to help address the country’s housing shortage.”

Housing Inventory Outlook for June 2023

Low housing inventory has been a challenge since the 2008 housing crash when the construction of new homes plummeted. It still hasn’t fully recovered—and won’t in 2023.

Housing supply holding steady at near historic lows has propped up demand compared to other downturns, consequently sustaining higher home prices.

“Inventory is approximately 46% below the historical average dating back to 1999,” says Jack Macdowell, chief investment officer and co-founder at Palisades Group.

At the current sales pace, unsold inventory of existing homes is at a 2.9-month supply, according to NAR. Though up from 2.2 months a year ago and 2.6 months in March, supply is low by historical standards, especially in the face of pent-up demand.

With reportedly 85% of homeowners sitting on mortgage rates below 6%, industry experts have a gloomy outlook on when inventory will eventually normalize.

“We think that it is highly unlikely that the inventory problem will be resolved in 2023,” says Macdowell.

Housing Starts Forecast 2023

At the same time, there are some mixed signals in the homebuilding realm.

Single-family construction starts rose for the third consecutive month, increasing 1.6% in April as applications for building permits ticked down 1.5% from the previous month, according to the Census Bureau and HUD.

Yet, even with building permits edging down, builder confidence continues to grow, though cautiously.

The most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) that tracks builder sentiment jumped from 45 to 50. This is the fifth month-over-month increase following 12 consecutive months of declines, and the first time since July 2022 that the index touched 50.

Hitting the 50-point mark is a significant milestone. A reading of 50 or above means more builders see good conditions ahead for new construction.

“New home construction is taking on an increased role in the marketplace because many homeowners with loans well below current mortgage rates are electing to stay put, and this is keeping the supply of existing homes at a very low level,” said Alicia Huey, chairman at NAHB.

Nonetheless, even as builders work to meet the demand, they continue to face headwinds, including costlier supplies, a shortage of construction workers and tighter credit conditions due to the Federal Reserve’s aggressive interest rate hikes.

“Homeowners, homebuyers, lenders, as well as builders, are trying to adapt and predict interest rates, home prices, supply, demand and the potential for a Fed-induced recession,” says Macdowell. “As a result, builders may be reluctant to start new projects that would bring needed housing product to the market.”

Will the Housing Market Crash in 2023?

Due, in part, to the ongoing inventory crunch keeping home prices elevated, many economists predict the housing market is more likely to correct itself from the double-digit percentage jumps in home prices we’ve seen over the past few years rather than crash.

S&P CoreLogic Case-Shiller Home Price Index posted a month-over-month national price growth reading of 1.3% for March before seasonal adjustment. After a seasonal adjustment, the month-over-month increase was 0.4%.

This is the second consecutive month of modest national increases following seven months of consecutive decreases. Experts consider this latest trend an indicator that home price declines are now a thing of the past.

“Two months of increasing prices do not a definitive recovery make, but March’s results suggest that the decline in home prices that began in June 2022 may have come to an end,” said Craig J. Lazzara, managing director at S&P DJI, in the report. “That said, the challenges posed by current mortgage rates and the continuing possibility of economic weakness are likely to remain a headwind for housing prices for at least the next several months.”

Nonetheless, experts say whether home prices rise or fall in the coming months will likely depend on where you’re looking.

For instance, southeast metros, such as Miami, Tampa and Charlotte, North Carolina saw year-over-year gains ranging between 4.7% and 7.7%, but it’s a different story in other areas, most notably in cities such as Austin, Texas; Boise, Idaho; Salt Lake City and West Coast areas that saw big price booms during the pandemic.

“The farther west we look, the weaker prices are, with Seattle (-12.4%) now leading San Francisco (-11.2%) at the bottom of the league table,” said Lazzara. “It’s unsurprising that the Southeast (+5.4%) remains the country’s strongest region, while the West (-6.2%) remains the weakest.”

Despite some areas seeing price declines, experts point out that today’s homeowners stand on much more secure footing than those coming out of the 2008 financial crisis, with many borrowers having positive equity in their homes. Consequently, the likelihood of a housing market crash is low.

“Homeowner equity is at the highest level it’s been in the past several decades, so homeowners have a lot of value in their home,” says Nicole Bachaud, an economist at Zillow.

Will There Be a Lot of Foreclosures in 2023?

In April, foreclosure filings were down 10% from March but up 8% from last year, according to ATTOM, a property data provider. Foreclosure completions were down 39% from the previous month but increased 3% from a year ago.

“Foreclosure activity continues to stabilize and even correct itself in 2023, with April showing a 10% decrease in overall activity after a 20% increase [in March],” said Rob Barber, chief executive officer at ATTOM.

Even so, Barber noted that a decline in foreclosure activity is a typical trend for April and that ongoing foreclosure declines are not a foregone conclusion.

It’s also worth noting that while foreclosure rates are up year-over-year, experts do not expect to see a wave of foreclosures in 2023, even where home values are depreciating, as many homeowners have substantial equity due to progressive home price appreciation in recent years.

When Should I Buy a Home in 2023?

Buying a house—in any market—is a highly personal decision. Because homes represent the largest single purchase most people will make in their lifetime, it’s crucial to be in a solid financial position before diving in.

Use a mortgage calculator to estimate your monthly housing costs based on your down payment and interest rate.

Trying to predict what might happen this year is not the best homebuying strategy. “Buyers sitting on the sidelines today in anticipation of lower prices tomorrow may end up disappointed,” says Neda Navab, president of the U.S. region at Compass, a real estate tech company.

“The housing market—like so many other markets—is almost impossible to time,“ says Orphe Divounguy, senior macroeconomist at Zillow Home Loans. “The best time for prospective buyers is when they find a home that they like, that meets their family’s current and foreseeable needs and that they can afford.”

Divounguy says “getting on the housing ladder” is worthwhile to begin building equity and net worth.

Instead of waiting for much lower prices, experts suggest buying a home based on your budget and needs. If you find a home you love in an area you love, and it also fits your budget, then chances are it might be right for you. However, if you make too many sacrifices just to get a house, you may end up with buyer’s remorse, potentially forcing you to offload the house.

Tips for Buying in Today’s Housing Market

Even as prices soften, you may realize that the area where you want to buy a home is still out of reach, so it’s important to be flexible.

“If you badly want a house and can work remotely or switch jobs, moving to lower-priced housing markets is a good idea to consider,” says Robert Frick, corporate economist at Navy Federal Credit Union. “Millions of Americans have done that already.”

Also, get all your ducks in a row in advance—review your financial situation, gather required documents, shop multiple lenders and strengthen your credit score. That way, when you find your dream home, you’ll be in a better position to act fast in a tight market.

“Only the best prepared, with their financing lined up, a solid understanding of what they can afford, and constant checking of prices and listings will be successful in today’s highly-competitive market,” says Frick. “Know how much your monthly payment will be—complete with taxes—and how well that fits into your budget.”

Getting to know a local realtor where you’re hoping to buy can also potentially give you a crucial edge in a tight housing market.

“Find out what your options are with a reputable, experienced agent,” says Divounguy. “A lack of inventory means buyers should expect plenty of competition, especially in more affordable areas and for more affordable houses.

However, if you’re a first-time homebuyer you should be especially careful when choosing an agent.

“With the market’s shift, you want to hire an expert who’s been there before, has a pulse on all the changes happening in your desired neighborhood and works well with your loan officer.”

Tips for Selling in Today’s Housing Market

“Sellers should make sure to work with an agent in order to get their pricing right,” says Divounguy.

Divounguy adds that homes that are priced right are the ones that get the competition while others linger on the market.

She also advises sellers to take steps sooner rather than later to get their houses ready to sell.

“The top regret we hear from sellers year after year is that they wish they started prepping their home for sale sooner,” says Divounguy. “And don’t neglect your online curb appeal.”

Divounguy also advises sellers to include a 3-D home virtual tour or an interactive floor plan in their listings. She reports that listings that utilize these virtual tools on Zillow get 69% more page views and 80% more saves.

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