Housing Market Predictions For 2023: When Will Home Prices Be Affordable Again?
Because rates are high, Yun foresees a greater interest in adjustable-rate mortgages through next year. However, after that, he predicts 90 percent of Americans will return to the traditional 30-year fixed-rate mortgage. Greg McBride, CFA, Bankrate’s chief financial analyst, thinks the 30-year fixed will remain the dominant mortgage product. “It provides the certainty borrowers want, lenders can sell them to investors, and there is a vibrant secondary market of global investors eager to buy them,” he says.
Predictions for home prices
Yun foresees no major changes in purchase price tags on a nationwide level next year, with fluctuations of only about 5 percent one way or the other. The only exception is California, he says, where the market could see 10 percent declines: “Because it’s so expensive, California is always the most vulnerable to changes in interest rates.” This scenario is already playing out in the priciest areas in the state: For example, San Francisco median home prices are down 9.71 percent since last year, according to Redfin data. Overall, in five years, Yun expects prices to have appreciated a total of 15–25 percent.
McBride predicts home prices will average low- to mid-single-digit annual appreciation over the next five years. This rate of appreciation, he says, is consistent with the long-term average of home prices increasing by a rate that hovers a percentage point above the inflation rate.
Will the housing market crash?
While it may show bubble-like characteristics, Yun does not expect the residential real estate market to pop. He does predict that sales will be at a low point next year, with only 5.3 million units sold, but he foresees a gradual increase afterward, up to an annual 6 million units by 2027. Despite today’s higher mortgage rates, home prices are still strong, he adds. Even if they decline 5 percent (or 10 percent in California) next year, that’s not anywhere close to crashing, which he says is characterized by a one-third drop.
A crash happens with oversupply. It will not happen because there isn’t enough inventory.
— LAWRENCE YUN, CHIEF ECONOMIST, NATIONAL ASSOCIATION OF REALTORS
“A crash happens with oversupply,” Yun says. “A 30 percent decrease will not happen because there isn’t enough inventory.” He believes the housing supply will balance out within five years.
Many other experts agree that there is no danger of an imminent housing market crash. Not only is inventory is too scarce, as Yun notes, but lending standards today are much stricter than they were back in the days of the Great Recession. Lenders are largely not issuing loans that borrowers can’t really afford anymore, which helps keep foreclosure rates low.
Will we shift into a buyer’s market?
Yun expects the overall seller’s market to continue as long as housing inventory remains low. By five years out, though, he foresees more of a balanced market, where neither the buyer or seller holds a significant advantage. Instead, the negotiating power between parties will be more equal and depend on the individual case.
Affordability Struggles Sideline Hopeful Home Buyers
If now doesn’t feel like the right time to buy a home, you’re not alone.
In fact, you’re among the 82% of consumers who reported putting home buying plans on hold, even as they say that they feel their job and income are stable or better than a year ago, according to the Fannie Mae Home Purchase Sentiment Index (HPSI).
Thanks to escalating mortgage rates and still-high home prices, homeseekers on $3,000 monthly budgets who could have purchased a $500,000 home a year ago, can only afford a $429,000 home today, according to a recent Redfin report.
First-time buyers hoping to land a home at a lower price point generally have it the worst.
Starter home costs continue on an upward trajectory that has put homeownership further out of reach for those already constricted by limited down payment savings and incomes that can’t keep pace with costlier monthly payments, according to Realtor.com data.
For example, monthly mortgage payments in Wichita, Kansas have exploded by 271% since 2019. It’s a similar story in many areas of the country that historically have been more affordable.
Weakening affordability conditions for first-time buyers is further underscored in NAR’s latest First-Time Homebuyer Affordability Index. The preliminary second-quarter reading came in at 61.4, compared to 67.4 in the first quarter. A reading of 100 indicates that a family earning a median income earns exactly enough to qualify for a mortgage and afford a typical home.
In other words, the typical first-time home buyer is nowhere near earning the level of income required to afford a home.
Are Home Prices Beginning to Drop?
Despite signs that home prices are beginning to weaken in some regions, the housing affordability crisis is likely to perpetuate thanks to a meager housing supply, persistently high mortgage rates and sales prices that are flirting with the June 2022 record-high median existing-home sales price of $413,800.
The median existing-home sales price slid to $406,700 from $410,200 between June and July, but increased 1.9% from a year ago, according to NAR.