Looking for a real estate forecast for 2023? To answer these questions with clarity, one would need to posses a consistently accurate crystal ball. Until that owner comes forward we can, however, evaluate the known factors and metrics to provide an informed prediction!
No one person or entity can truly predict how the future housing market will trend. However, we can use known data to arrive at a meaningful forecast. We also should clarify a lot of the housing market noise one might here in mainstream media reports regarding ‘housing bubbles’ and housing ‘market crashes’. First, we start with our 2023 real estate market predictions.
Real Estate Market Predictions for 2023
Here are 15 predictions for the 2023 housing market in the United States:
- Mortgage interest rates will continue to rise in 2023 to offset inflation
- Home prices will continue to increase in select housing markets
- Housing inventory will continue to tighten even more than in 2022
- Fewer home sales and longer pending sales as a result of the aforementioned
- Existing homeowners committed to selling will be more demanding of the sale specifics
- Rental home and second home purchases will increase by those with expendable capital
- Dwindling number of real estate agents – agents exiting the industry due to the market
- More complex sale contracts will lead to lower buying sales agent fees
- Real estate agents will need to diversify their skillset and services provided/offered
- Multi-party home purchases will increase, i.e. by companies such as Pacaso
- Higher demand for listing agents who will need to grapple with lower inventory
- Existing homeowners will not sell due to low, locked-in interest rates
- New home construction numbers will decline due to the rising cost of materials, labor, etc.
- New apartment construction will increase due to the absence of low-cost housing
- Untapped or previously slow growth real estate markets will see a rise in demand
Over the next five or more years millennials, and secondarily Gen X, will be the major drivers in the U.S. housing market. Millennials are slowly entering the housing market – a topic that warrants its own article entirely – for the first time. Unfortunate to them, they are entering the real estate market at a time when demand is high, interest rates will continue to climb, and available home inventory is low.
New housing starts will continue to decrease due to the rising cost and scarcity of building supplies and skilled labor. Home builders will work to reduce their risk – and overhead – by producing fewer homes in multiple desirable markets across the United States. This, coupled with increasingly tighter restrictions on new development by local governments for single family homes, town homes, and even new apartments to some extent will drive new home numbers lower in 2023.
In contrary to the supply issue, the demand for housing, rentals or ownership, continues to grow. Home prices and monthly rental prices will continue to rise in markets alluring to – or those markets who currently have – a high number of millennials. For those unwilling or incapable of paying high monthly mortgages or rent, this will drive a continued trend of millennials moving to previously untapped or slow growing markets and cities – a great example of this is what has been seen the past few years in markets such as Boise, Idaho, Nashville, Tennessee, Raleigh, North Carolina, etc.
Factors that Cause a Housing Market Crash
The housing market crash occurs when:
- Interest rates rise too quickly
- Mass layoffs or jobs are lost too quickly along with demand
- Loans instantly become difficult to obtain
- An economic slow down or massive recession occurs that causes massive deflation
Factors that cause a housing market to bubble are:
- Low interest rates
- Rapid job growth, which increases housing demand
- Easy lending or inflation
When a market is experiencing a combination of these factors, a housing bubble may have formed and then could easily burst if one of the factors is removed.
What is a Housing Bubble?
A housing bubble forms when home prices increase quickly and rise beyond affordability. It can start growing when there’s a lot of demand, coupled with the ability to buy. It can also form when there aren’t enough houses for sale on the market to meet demand, which creates competition and drives prices up. A housing bubble should not be confused with a previously stagnant housing market increasing rapidly due to that market is now more enticing to the masses.
Housing bubbles basically mean that prices increase constantly, becoming less affordable for the average home buyer. The bubble bursts when major national economic factors occur such as a recession or depression. A housing bubble does not exist simply due to basic economic factors of supply and demand.
If a housing markets other economic indicators are strong, such a solid job market, high employment, and increasing salaries, then that market is not in a bubble it is merely experiencing rapid growth.
What Happens When a Housing Bubble Bursts?
Excessive risk-taking and unsafe practices by lenders, buyers, borrowers, builders, and investors or major national economic shifts cause housing bubbles to burst.
When a housing bubble grows and pressure builds, the housing market is likely to crash when several factors come into play. For example:
- Interest rates rise steeply
- U.S. economy slows
- Massive jobs losses
- Unsafe lending and buying practices
- Regional jobs are lost due to industry closure
Will the Housing Market Crash in 2023?
The short answer is no. To be clear, there actually isn’t anything such as a national ‘housing market’. This is s a broad based term for the real estate industry. Housing markets are more localized and regional and can trend in opposite directions in different locations or states.
Based on the indicators many experts do not believe there to be a housing market crash in 2023. However, a beginning of a change in the real estate market will occur. High demand and a lack of inventory will persist through 2023 and beyond. New construction – no pun intended – will be a no-starter due to the rising costs of building materials and builders’ risk.
As a result of the 2008 market crash, banks will work to minimize a new housing crash because, at the end of the day, it hurts their bottom line. Lenders will work with the borrowers who were not at fault for losing their jobs and businesses. Banks will offer loan modifications, moving the owed payments to the end of the loan cycle, when forbearance for mortgages completely run out.
There are housing markets around the country that will get hit harder such as large cities or markets that experienced increased housing prices in 2022 or an exodus of population from those areas. Expensive housing, a high cost of living, and a continued lack of quality of living has been driving people away from big cities and into smaller, more affordable cities or markets that offer a better quality of life. The smart real estate investors in 2023 will be those individuals who can: a) predict where people are moving and b) the markets best for investing.
There are several markets in the U.S where home prices are at their highest level in history due to previously low interest rates making these markets more affordable, even if home prices are higher in those markets. This does not mean they are in a bubble nor is this an indication the housing market will crash. With dwindling inventory reaching well into 2023, coupled with the other factors we mentioned, it is a clear indication that housing prices are higher than they have ever been. Regarding the housing market in 2023, it is simply Economics 101 – Supply and Demand.