Real Estate Housing Market: Home Prices Dropping 2023?

For many Americans, the dream of owning a home has become increasingly difficult to achieve in recent months. The real estate housing market in 2023 has been a tough one, with a combination of factors making it challenging for potential homebuyers to enter the market. The main culprits are low inventory, high mortgage rates, and inflation, which have left many people unable to buy a house.

However, the real estate market is an ever-changing landscape influenced by numerous factors, including economic conditions, interest rates, demographics, and housing supply and demand. In recent years, the housing market has experienced fluctuations, with prices reaching record highs and sparking concerns about housing affordability.

Housing Market Predictions 2023

In August 2023, experts think that the trends from July will keep going. James Allen, who started Billpin, compares the housing market to a slow game of musical chairs with fewer chairs available.

Compared to last year, there are 60% fewer active listings, causing a shortage of houses for sale. Because of this, median list prices have risen to $1.2 million, which is a 3% increase from the previous year.

If these trends continue, August 2023 could be like a serious round of musical chairs for people looking to buy homes.

1. Mortgage rates can be uncertain

A big worry is that we’re not sure what mortgage rates will be. On August 1, the average rate for a 30-year fixed mortgage was 7.26%, which is much higher than the rates we had a couple of years ago.

However, there’s some hope that rates might go down a bit next month if the economic data looks good.

Danielle Hale, who is the chief economist at Realtor, says that there are still uncertainties, and rates might go up again if inflation data in August is higher than expected. If job growth improves or inflation goes up by only a little, mortgage rates might increase. On the other hand, if inflation is lower, it could help bring mortgage rates down.

2. Inventory Challenges

One big problem is that there aren’t enough houses available for sale. The number of houses for sale has been decreasing, and this trend is expected to continue in the second half of the year, with even fewer houses available than the previous year.

This limited supply has made the housing market very competitive, even though prices are higher. Many homeowners are keeping their current low mortgage rates, which makes them reluctant to sell their homes.

Because of this, people who are struggling to find options in the existing home market may find new homes more attractive. Builders have more new homes to offer, and the pricing for these new homes is more flexible compared to existing ones.

3. Home prices are rising up

There’s a worrisome trend of home prices going up consistently. In the last two years, the average cost of buying a home has gone up a lot, and the mortgage rates have more than doubled. As a result, people now have to pay much more each month for their mortgages, making it harder for many to afford buying a home.

The situation got worse because the Federal Reserve increased interest rates, and there were problems with some regional banks, which made it even more difficult for people to qualify for a home loan. This means that many potential homebuyers might not be able to afford to buy a home anymore.

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Will Home Prices Drop In 2023?

Opinions differ on whether home prices will drop in 2023. While some forecasts, such as the University of California San Diego, predict a 5% national drop and up to an 18% drop in some cities, others, like real-estate data provider CoreLogic, expect national prices to rise by 3% by the end of December.

However, either scenario would be relatively good news for home buyers compared to the previous few years of steady price growth. The housing market experienced significant price appreciation since the beginning of 2020 due to increased demand and a lack of supply.

The market has been short on for-sale listings for over a decade, with estimates indicating a significant shortage of housing units relative to demand. Experts predict a more stable market in 2023, with less dramatic highs and lows, or as one expert puts it, “a reduction to reasonability.” For prices to come down further, it would require an increase in inventory to meet the demand.

Real Estate Forecast Next 5 Years

Based on the information provided by Zillow, it appears that the real estate market is expected to show a steady growth pattern over the next five years. According to their predictions, home values are forecasted to increase gradually with each passing year.

In 2023, Zillow predicts a 3.5% increase in home values. This suggests a positive outlook for the housing market and indicates a potential rise in property prices.

Moving forward to 2024, the projected increase in home values is 3.4%. This slight decrease from the previous year’s forecast still signifies a healthy market and indicates a sustained growth trend.

In 2025, Zillow anticipates a 3.3% rise in home values. Though the rate of appreciation is gradually declining, it is important to note that this is a common characteristic of mature markets.

Finally, for 2026, Zillow’s forecast points to a 3.2% increase in home values. The market is expected to remain relatively stable and continue its positive trajectory.

Overall, the predictions indicate that the real estate market is likely to experience steady growth over the next five years. However, it’s essential to recognize that real estate trends can be influenced by various factors such as economic conditions, interest rates, housing supply and demand, and geopolitical events.

Thus, while these forecasts are valuable indicators, they are not set in stone, and it’s always wise to consider them within the broader context of the real estate landscape.

Frequently Asked Questions:

Will 2023 be a good time to buy a house?

2023 might not be the best time to buy a house, as the housing market is expected to be tepid with lukewarm demand and limited inventory. However, there is a possibility of mortgage rates decreasing if inflation pressures ease.

What happens to house prices during inflation?

During inflation, the prices of houses tend to increase, especially when the supply of homes remains constant, and demand for housing rises. This effect is more prominent in large cities with limited land availability.

Will it ever be a good time to buy a house?

Yes, it might be a good time to buy a house soon. Mortgage rates are expected to decline, with Fannie Mae predicting a drop from 6.3 percent in 2023 to 5.7 percent in 2024. So, exercising a bit of patience could pay off if you’re considering becoming a homeowner.

Will home prices drop in 2023 recession?

Yes, according to Fannie Mae’s forecast model, home prices are expected to drop during the 2023 recession. They anticipate a 1.2% decline between Q4 2022 and Q4 2023, followed by another 2.2% decrease between Q4 2023 and Q4 2024.

Will mortgage rates go down in 2024?

Yes, based on forecasts from organizations like Fannie Mae and the Mortgage Bankers Association, it is expected that mortgage rates will go down in 2024, with a decline in average rates for 30-year fixed-rate mortgages predicted throughout 2023 and the first quarter of 2024. However, this is subject to change depending on the uncertain path of Fed rate hikes.

Will inflation cause housing crash?

While it is unlikely to cause a major housing market crash, inflation can still have an impact on the housing market. The rising costs associated with high inflation may put pressure on buyers, leading to a potential decrease in demand and, consequently, a slowdown in home value appreciation. However, experts like Buehler don’t foresee a catastrophic crash; instead, they expect home values to flatten out as inflation becomes a factor in the housing market.

Final Words:

In summary, the real estate housing market in 2023 is going to be tough for those looking to buy a home. There are several factors at play here, including low inventory of available homes, high mortgage rates, and rising property prices. Navigating through these challenges will require careful consideration and planning. While there might be some relief if mortgage rates go down slightly, there’s still a lot of uncertainty in the market.

For potential homebuyers, it might be worth considering exploring more affordable regions like the Midwestern, where they could find suitable options that fit their budget.

Overall, finding a place to call home in this housing market is like playing a high-stakes game of musical chairs, and it’s undoubtedly going to be a struggle.