What’s up everyone
Redfin has come out with their Housing Market Predictions for 2023 and some I agree with while others I don’t.
They predict sales, mortgage rates, home prices, rents and so much more.
So lets just dive right in and take a look at their 12 housing market predictions and I’ll give you my opinion as well.
Prediction #1: Home sales will fall to their lowest level since 2011, with a slow recovery in the second half of the year
Redfin says that they expect about 16% fewer existing home sales in 2023 than 2022, landing at 4.3 million, with would-be buyers pressing pause due mostly to affordability challenges including high mortgage rates, still-high home prices, persistent inflation and a potential recession.
They go on to say that People will only move if they need to.
As it stands, existing home sales have already declined for nine straight months so this is no surprise.
We’ve been talking about the affordability crisis for a while now and at least where I am in the DC area, prices haven’t come down hardly at all while interest rates are still so much higher than they were 6 months ago and double what they were a year ago.
Even across the country, besides some of the more bubbly markets like Boise, Austin and Phoenix- I don’t believe prices have dropped enough to make buying a home, especially for first time buyers, affordable yet, so – yeah, I think Redfin may be right about this one.
Prediction #2: Mortgage rates will decline, ending the year below 6%
Redfin expects 30-year fixed mortgage rates to gradually decline to around 5.8% by the end of the year, with the average 2023 homebuyer’s rate sitting at about 6.1%.
They go onto say that Mortgage rates dropping from around 6.5% to 5.8% would save a homebuyer purchasing a $400,000 home about $150 on their monthly mortgage payment.
To look at it another way, a homebuyer on a $2,500 monthly budget can afford a $383,750 home with a 6.5% rate; that same buyer could afford a $406,250 home with a 5.8% rate.
Still, that’s much less affordable than a few years earlier. With a 3% rate, which was common in 2020 and 2021, that same buyer could afford a $517,000 home.
As a real estate agent, I’m not qualified to quote rates but I can tell you that the lenders I deal with are of the opinion that rates will be in the 5’s next year, some have even said they think they will go as low as 5% by the end of 2023.
One thing that has happened recently is that new conforming loan limits have been raised to $726,200 and $1,089,300 effective immediately which may be able to help buyers when they go to buy a house.
Definitely check with a loan officer as everyone’s situation is different.
Prediction #3: Home prices will post their first year-over-year decline in a decade, but the U.S. will avoid a wave of foreclosures
Redfin predicts the median U.S. home-sale price to drop by roughly 4%—the first annual drop since 2012—to $368,000 in 2023.
That’s due to high interest rates and final sale prices starting to reflect homes that went under contract in late 2022.
They go onto say that Prices would fall MORE if not for a lack of homes for sale: Redfin expects new listings to continue declining through most of next year, keeping total inventory near historic lows and preventing prices from plummeting.
With prices remaining still higher than pre-pandemic levels the chance of a wave of foreclosures next year is highly unlikely.
Very few homeowners are likely to find themselves underwater with next year’s predicted price declines.
This is due to most homeowners, who have had their homes for a few years, securing their mortgages when rates were low and benefitting from soaring home values during the COVID-19 pandemic.
This makes sense to me. Between stricter loan approval requirements and higher home values, I also don’t think we will see a massive onset of foreclosures like we did back in 2008.
Prediction #4: Midwest, Northeast will hold up best as overall market cools
Housing markets in relatively affordable Midwest and East Coast metros, especially in the Chicago area and parts of Connecticut and upstate New York, will hold up relatively well, even as the U.S. market cools.
Those areas tend to be more stable than expensive coastal areas, and they didn’t heat up as much during the pandemic homebuying frenzy.
They published a list of the Markets Likely to Hold Up Best in 2023
We discussed this in last weeks video. My opinion is if you already live in one of these places or have to move there for work, this is good news.
I just don’t see people flocking to most of these places like they did with the sunshine states that offer a more attractive lifestyle for the most part.
Prediction #5: Rents will fall, and many Gen Zers and young millennials will continue renting indefinitely
Redfin expects U.S. asking rents to post a small year-over-year decline by mid-2023, with drops coming much sooner in some metros. Some large landlords are likely to offer concessions, such as a free month’s rent or free parking, before dropping asking rents.
They go on to say that the rental price declines will come from an increase in supply – due to an increase in Multifamily construction as well as the idea that would be sellers will rent out their homes instead of selling them to keep their low interest rates.
Increasing rental supply and declining prices—along with high mortgage rates, limited inventory and other affordability barriers—mean few renters will become buyers next year. Instead they will become move up renters, upgrading to a larger space, and spend their money investing in stocks, while they continue renting indefinitely.
Well…this just makes me sad because there’s something so unique about owning your own home. Its tangible and we create memories while building equity and hoping to leave something to our children.
At least thats how I see it.
Prediction #6: Builders will focus on multifamily rentals
Builders will continue to pull back on constructing new homes next year, with year-over-year declines of roughly 25% in building permits and housing starts continuing into 2023.
Builders will shift away from the construction of single-family homes which they ramped up construction of during the pandemic and still need to offload, and instead focus on constructing more multifamily rental buildings as rental demand won’t fall as much.
I think we already covered this
Prediction #7: Investor activity will bottom out in the spring, then rebound
Real estate investors will purchase about 25% fewer homes than a year earlier, with purchases likely to bottom out in the spring.
Money is just too expensive right now for the investor business model for it to make sense
They also note that there are fewer iBuyers in the market–Redfin recently shut down its iBuying business–which will also slow down activity.
But if inflation slows and the Fed eases rate hikes, Redfin predicts that investors will reenter the market in the second half of the year, taking advantage of slightly lower home prices.
We all know that the failure of the different buying programs has also scared certain investors from entering the market right now but if rates go down and prices go down, I can see them reentering the market.
Prediction #8: Gen Zers will seek jobs and apartments in relatively affordable mid-tier cities
Gen Zers are entering into a workforce with more remote-work opportunities than ever before, which means they’ll have more flexibility in where they’ll choose to start their careers than older generations.
They can prioritize things like affordability, lifestyle, weather and proximity to family.
I’m seeing more young adults come back and live with their parents while saving money or share apartments or homes with their friends to offset the costs. I don’t know many of them who chose to live in random places because its more affordable without some other reason to be there.
Prediction #9: Migration from one part of the country to another will ease from the pandemic boom
Redfin expects the share of Americans relocating from one metro to another will slow to about 20% in 2023, down from 24% this year. That’s still above pre-pandemic levels of around 18%.
In 2023’s slow market, there won’t be a next “Austin”. Redfin thinks people who will relocate next year are retirees and remote workers who are still seeking out more affordable areas will go mostly to places with no state income taxes, like Florida, Texas and Tennessee.
Hey, if you can take advantage of living in a place that has no income taxes, why not! I don’t think this is unique to 2023.
Prediction #10: Rising disaster-insurance costs will make extremely climate-risky homes even more expensive
Some Americans will be priced out of climate-risky areas like beachfront Florida and the hills of California because of ballooning insurance costs. Redfin expects disaster-insurance rates to continue rising next year (and beyond), rendering housing in some areas more expensive.
As disaster insurance is now a prerequisite for a mortgage in many risky areas, those areas are likely to become more concentrated with affluent, all-cash buyers.
Once again, this is nothing new in my opinion – flood insurance has always been super expensive and I can only imagine how much disaster insurance is. I can tell you from personal experience helping my mother, that its really expensive to get home insurance in Florida.
Prediction #11: More cities will follow Minneapolis’ YIMBY example to curb housing expenses
More U.S. cities will look to Minneapolis, which in 2019 became the first major city to eliminate single-family-only zoning, for inspiration in keeping rental and home prices under control. Earlier this year, Minneapolis became the first metro area to see rents decline.
Full disclosure, I had to look up YIMBY which stands for (yes in my backyard)
Redfin expects more local and state governments will eliminate single-family-only zoning, allowing more multifamily buildings, townhouses and ADUs.
I need to know more about this before commenting
Prediction #12: Buyers’ agent commissions will rise slightly as fewer agents broker fewer deals at lower prices
Next year’s slow housing market is likely to reverse or at least halt the downward trend in buyers’ agent commissions.
The hot pandemic-era housing market pushed the typical U.S. buyers’ agent commission down to 2.63% of the home’s sale price in 2022, its lowest level since at least 2012.
But declines in home prices and sales will prop up buyers’ agent commissions next year. Sellers will also play a part, with some offering to pay higher commission for buyers’ agents to attract bidders.
Where I am in the DC area, esp in Montgomery County MD, most of the commissions I see are 2.5%. I know my colleagues across the country are still seeing 3% but here that is less common.
I do think there will be less transactions next year and its more important than ever to work with an experienced seasoned agent who understands the market and how to strongly negotiate. Ive been doing this 19 years and have been through ever market and I can tell you from experience, it gets very tricky during a changing market.
So thats their 12 predictions of the housing market in 2023.
What are your thoughts?