What’s up everyone
It’s that time of year when everyone puts out their housing market predictions for 2023. So today we’ll look at Zillow and Realtor.coms 2023 Housing Market Forecast and Predictions to see what they are predicting for next year and see if we agree with them or not
So lets dive right in
Zillows first bold prediction is that
1. The Midwest to feature front and center in 2023
They start by saying how Florida markets dominated the annual appreciation leaderboard in 2022, with Tennessee, the Carolinas and Texas metro areas taking the top spots among the 100 largest metros.
But for 2023, Zillow predicts that the trend will turn to more affordable places to live and the MIDWEST will have the healthiest housing markets next year.
They note that Home prices in most Midwest metro areas haven’t run up to extremes like other parts of the country.
For example, Mortgage costs as a share of income are still within healthy, sub-30% levels across Ohio, Pennsylvania, Kansas, upstate New York, Iowa and smaller metros in Illinois, which will allow first-time buyers to take the plunge.
They also note that inventory is higher in these midwest states and declines in new listings are smaller than the national average, encouraged by the more consistent demand from buyers.
This sounds like great news if you are thinking of moving to the Midwest for work or if you can work from home or obviously if you already live there and are thinking of buying for the first time.
But if you’re not in one of these situations, this may not excite you. No disrespect to the Midwest, I went to college in Ann Arbor mi and loved it, but the Midwest doesn’t have the appeal of the Sunshine states as far as lifestyle.
Are any of you thinking of buying in these mid western states?
2. Buying with friends and family will gain momentum
Ok…this is interesting. Zillow says that they did a survey this spring that found that among successful recent homebuyers, 18% had purchased along with a friend or relative who wasn’t their spouse or partner, and 19% of prospective homebuyers intended to buy with a friend or relative in the next 12 months.
For both groups, affordability and qualifying for a mortgage were cited as the top reasons for buying together –and we know that rates have gone up since spring making buying a house even more unaffordable.
According to Zillow, Mortgage payments for a typical U.S. home rose from needing 27% of median household income in January to 30% in March to 37% in October – far beyond the 30% threshold where housing becomes a financial burden.
Now, I’m not saying that this isn’t true or necessarily a bad idea, but I haven’t personally seen this trend. I have seen more gifts from family this year to help offset the costs but but not co buying with a friend or relative.
While this may offset costs, I just can’t imagine this wouldn’t cause some possible problems. Buying and owning a home is a lot and can be very emotional and life changing. What are your thoughts? Do you think this is a good idea?
3. Affordability crisis will stabilize, if not improve
So Zillow states that Affordability – the share of median income required to pay housing costs – is the biggest challenge for buyers, sellers and renters today.
We know that Monthly mortgage costs have doubled since 2019 due to the crazy escalated prices coupled with higher interest rates.
Zillow Continues to say that High mortgage rates are not only pushing buyers to the sidelines, they’re stopping new inventory from coming on the market as homeowners decide to hang on to their current houses and low rates.
Renters are not exempt from the madness. Rents have grown faster than wages, making it harder to save up for a down payment. The average hourly wage has grown 23% over the past five years, but rents are up 37% during that time after a pandemic-era surge.
So far I agree with everything. Heres where I get confused.
Zillow says that they expect “national home values to remain relatively flat next year”, and Mortgage rates “show small signs of easing” and “Volatility in mortgage rates could continue through early 2023”
So how does this equal to the affordability crisis stabilizing? If home vales remain flat, they will still be way too expensive for buyers especially if mortgage rates only show SMALL sigs of easing.
I’m not sure if this is simply clickbait but it doesn’t make sense to me.
4. Surge in first-time landlords in 2023
In this prediction, Zillow states how a lot of people (mom and pop investors) bought a second property in 2020 and 2021 when rates were super low.
They say that “As rent growth continues its aggressive pace, many of these second homes have an even better potential to yield regular rental income above mortgage payment fixed with record low rates.”
So their philosophy is that these “investors” will keep their 2nd homes and rent them out to provide them income rather than sell them or use them themselves
“The potential for regular income, bearish expectations for stock markets in 2023, and the big pull back from home buyers due to higher mortgage rates may reinforce the incentive to hold onto those investment properties, especially in areas like the Midwest Sun Belt, where household formation and housing demand is stronger. “
Sure? Maybe? I mean it makes sense if you have a Second home and want to make some money then you may consider renting it out. But in my experience, people who can afford a second home and didn’t intend for it to be an income property when they bought it, usually won’t suddenly want to be a landlord.
I guess we’ll have to see about this one
5. New construction strength will be in rentals
Here Zillow predicts that builders of multi family units will increase production to meet the demand of renters since buying a house is unaffordable right now.
They admit that demand is low for single-family new construction and that builders will encourage buyers with lower prices, and offer to buy points to lower the mortgage rate of new construction buyers.
BUT, they say that Builders of multi-family units are, in contrast, much more bullish.
“Elevated multi-family permits also point to a strong vote of confidence in continued demand for rental units despite looming recession fears.”
They think this confidence will also encourage more construction of build-for-rent homes, as many would-be homeowners will need to continue renting into later life stages since they can’t afford to buy.
Well this just makes me sad. And contradicts prediction #3 where they say that the Affordability crisis will stabilize, if not improve.
You can’t have it both ways Zillow- either you’re predicting the market will get better ( and more affordable) or things will get worse.
And thats the extent of Zillow’s Bold Predictions for 2023- thoughts?
Lets pivot to realtor.coms predictions for 2023 which are definitely more streamlined and succinct.
Mortgage rates: they predict 7.4% average 7.1% by year end.
Existing Home Median Price Appreciation: Up 5.4%
So they think home prices will appreciate next year, just at a slower rate.
Just to give context, Existing Home Median Price Appreciation was 17% in 2021 and 6.4% for the 2013-2019 Historical Average.
Existing Home Sales (Y/Y | Annual Total): -14.1% to 4.53 million. The 2013-2019 Historical Average is 5.27 million
Existing Home For-Sale Inventory (Y/Y): up 22.8%. This is a BIG change. But even with inventory up 22.8% , it will still lag 2019 pre-pandemic levels according to realtor.com
“The level of inventory in 2023 is expected to fall roughly 15% short of the 2019 average”.
In fact October 2022 was the first time that inventory climbed back to its 2020 level for the same time of year.
Single-Family Home Housing Starts (Y/Y | Annual): down 5.4% to 0.9 million
And Rent Growth: up 6.3% which is no surprise since its simply not affordable to buy a house.
The bottom lime is they think There will be more homes for sale, homes will likely take longer to sell, and buyers will not face the extreme competition that was commonplace over the past few years. However, affordability challenges prevent 2023 from being a major buyer’s market, especially for first-time homebuyers who already faced significant obstacles.
Now as I always say real estate is local and these predictions are national so they will differ from market to market.
What are your thoughts?