Is The Real Estate Market Slowing Down? What To Expect In 2023


Key takeaways

  • With persistent rate hikes from the Fed, there are widespread fears that the economy will enter a recession. The rate hikes and overall economic uncertainty have brought mortgage demand down.
  • Existing home sales dropped for the 9th straight month (by 5.9% in October) as potential home buyers struggle with affordability.
  • Analysts at Redfin predict that the median home price will drop 4% in early 2023 to $368,000. This isn’t even close to a real estate crash, but it’s a sign that housing price growth may finally stabilize.

With the inflated home prices and high interest rates we’ve seen recently, many experts expected the real estate market to slow down since potential homebuyers are struggling to afford an inflated house, let alone the associated interest rates.

It appears it’s going to be a gradual slowdown. According to the Case-Shiller National Home Price Index, home prices dropped 2.2% between June and September 2022.

Many potential homebuyers have been waiting for housing prices to drop so that they can finally enter the market. We will look at various statistics to see if the real estate market is slowing down and to what degree.

Existing home sales have fallen

According to the National Association of Realtors (NAR), pending home sales dropped by 4.6% for October. This happened because potential homebuyers couldn’t qualify for a mortgage due to higher interest rates. According to the data, more expensive areas in the country felt this the most.

The NAR also announced that existing home sales fell 5.9% between September and October. This was the 9th consecutive month that saw existing home sales fall. On an annual basis, sales dropped 28.4%, indicating that the higher prices were scaring would-be buyers away from the real estate market.

Mortgage applications are slowing down

According to the Mortgage Bankers Association, mortgage application volume recently dropped by 1.9% compared to the previous week. Mortgage demand is an indicator of the real estate economy because it shows how many people are looking to get into the market. The soaring borrowing costs matched with higher home prices are slowing demand for mortgages. Those who want to invest in real estate are either waiting for prices to sink further or they’ve found other investment options.

Real estate prices still haven’t dropped

Many home-buyers were hoping that there would be some sort of a real estate market correction and that prices would go down. Generally speaking, housing prices will tend to fall when interest rates go up. Not so much, at least not yet.

According to data from the NAR, while existing home sales are falling, the median existing home sale price rose 6.6% year over year to $379,100. However, this is down from the peak price of $413,800 in June 2022. The year-over-year housing price growth reached 10.1% in October 2022, which was the lowest number since early 2021.

These real estate figures are confusing, as the lagging indicators still show high prices, but current data show that this trend is reversing somewhat. Sales are slowing down, but the prices have a lot to drop before they become affordable once again.

TryqAbout Q.ai’s Inflation Kit | Q.ai – a Forbes company

Housing inventory fell again

The supply of unsold existing homes dropped to 1.22 million for the end of October 2022, down 0.8% from the previous month. One explanation for this is that many homeowners that are thinking of moving have locked in favorable rates in the last few years that they don’t want to lose out on. Homeowners opt to stay in their existing home rather than switch to a larger or smaller one because the interest rate would be higher.

The low housing inventory combined with the strong labor market will likely prevent the real estate market from crashing.

Real estate prices should fall in 2023

Many experts and analysts have come forward with predictions of real estate prices starting to fall in 2023 due to the fears of a possible recession. Economists feel that home prices should drop even more given the mortgage rate increases.

The CoreLogic S&P Case-Shiller Index (which measures the change in pricing for single-family homes) had a 10.6% year-over-year increase for September, down from 13% in August. This means that September’s annual gain was the lowest since December 2020, and it appears that housing prices peaked about six months ago. With September being the 6th consecutive month of decelerating real estate price growth, it appears that prices are finally stabilizing.

Based on CoreLogic’s Home Price Index forecast, the annual pricing growth should reach 8% in December and then get to 0% in early 2023. If this happens, it would mean that housing prices will finally stop growing. From there, we will have to monitor how real estate sales change to guauge the size and speed of the correction.

What can you expect in 2023?

Morgan Stanley has predicted that the average price of a house could decline by 10% from June 2022 through 2024. While the last housing market correction saw home prices fall 27% between 2006 and 2012, the situation is much different this time, with a resilient labor market and low inventory.

Redfin has also recently made its predictions for 2023. We’re going to break down these critical real estate forecasts that are worth discussing.

Home sales will drop to their lowest level since 2011

Redfin expects 16% fewer existing home sales in 2023 compared to 2022. This prediction is based on potential home buyers facing affordability challenges presented by high mortgage rates, high real estate prices and a possible recession. People won’t be as eager to move as they were during the pandemic months when interest rates were extremely low.

Mortgage rates will go down

Redfin believes that mortgage rates could fall from about 6.5% to 5.8%, which would mean that someone purchasing a $400,000 property would save around $150 on monthly mortgage payments. Conversely, if home prices drop while interest rates fall, a potential buyer who has been waiting can purchase a bigger home and have lower payments. This would be ideal for someone hoping to enter the real estate market in 2023, but there are simply no guarantees.

Real estate prices will decrease

Redfin predicts that real estate prices will have the first annual decline in over a decade, with a drop of about 4%. This would bring the median home price down to $368,000 in 2023. However, it’s also worth pointing out that even if there’s a 4% decline in housing prices, the average home will still be much more unaffordable than it was in 2019 before the pandemic. Based on the projected higher interest rates, the average monthly mortgage payment would be 63% more in 2023 than in 2019. While mortgage payments have ballooned, wages will have only gone up 27% over the same period.

The one thing that would prop up real estate prices from dropping even further is that the number of new listings could go down. Factors that influence this would be people choosing not to sell if they’re satisfied with their current fixed mortgage rate, or if they feel the new selling point wouldn’t be worth it. If these scenarios play out, the total inventory of available houses for sale would stay near a historic low.

What’s next for the economy?

It almost feels foolish to predict what will happen in 2023, as 2022 took many of us by surprise with the level of volatility we experienced. As always, we must pay attention to the rate hikes from the Fed to see what will happen next. The goal of these unprecedented rate hikes has been to curb inflation by slowing down the economy to restore the balance of supply and demand.

However, it’s worth mentioning that the resilient labor market has propped the economy up and prevented us from officially entering a recession.

Realtor.com says the median new mortgage payment went up about $1,000 in October compared to a similar property purchased in 2019. This means that new homeowners are finding themselves with higher mortgage payments that are significantly impacting their monthly budgets. Those trying to enter the market today must accept spending much more on their housing expenses compared to what was available just a few years ago.

With house prices going up 13.3% annually, it’s evident that most of the money is going toward the higher interest rates that are making mortgage payments more expensive. The higher rates have impacted homeowners’ wallets, and it’s worth observing to see if homeowners decide to sell their homes and if homebuyers hold off on purchasing them.

How should you be investing?

If you’re on the sidelines waiting to enter the real estate market, chances are you’re looking for ways to save up and invest. The highly volatile stock market has made it challenging to figure out how to best invest your money since you don’t want to lose any value from your mortgage down payment.

We have good news for you if you want to keep your assets relatively liquid while watching your money grow. Q.ai takes the guesswork out of investing so that you don’t have to stress about watching the markets. We also diversify your investments by bundling them up in Investment Kits so that you don’t have to worry about market volatility. You can also activate Portfolio Protection at any time to protect your gains and reduce your losses, no matter what industry you invest in.

The bottom line

If you’re waiting to enter the real estate market, there may be some positive signs that 2023 could be the year for you. A crucial factor to consider will be to see if the economy enters into a recession in early 2023, or if the Fed can generate a soft landing while tightening the monetary policy.

A higher federal funds rate tends to indirectly bring up consumer borrowing expenses, and with the battle against inflation being far from over, there’s still plenty of uncertainty in the real estate market.

Download Q.ai today for access to AI-powered investment strategies. When you deposit $100, we’ll add an additional $100 to your account.



Source link

Denial of responsibility! galaxyconcerns is an automatic aggregator around the global media. All the content are available free on Internet. We have just arranged it in one platform for educational purpose only. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials on our website, please contact us by email – [email protected]. The content will be deleted within 24 hours.

Leave A Reply

Your email address will not be published.