A Look Ahead to the 2023 Housing Market

Estimated reading time: 3 minutes

When most economists create their forecasting models, they rely on past market performance to inform their predictions. The past few years, the housing market has been anything but normal. As we navigate what comes next, Homestead Funding will continue to diversify our loan options and specialty programs to ensure homeownership is possible and affordable for our borrowers.

Will Listing Prices Lower?

Economists are split on what will happen this year with listing prices, according to a CNN Business report. Realtor.com is expecting a 5% rise in prices. In contrast, Zillow and Redfin both forecast that nationally, prices will decline between 1-4% from June 2022’s peak. The National Association of Realtors (NAR) projects prices will go up less than 1%, although it will largely depend on specific neighborhoods and local markets.

Will Inventory Increase?

Zillow is reporting that the national inventory of homes for sale has already increased to pre-pandemic levels of early 2020. However, it’s important to note that Realtor.com data from January 2020 notes that inventory had fallen at least 13.6% from January 2019. The Chief Economist of the National Association of Home Builders expects home starts to fall by another 15-20% before rebounding in 2024.

The shortage is due to numerous factors, including:

• Rising material costs
• Supply chain issues
• Labor shortages

It’s important to consider other ways of achieving homeownership. Inventory shortages are an ideal time to consider renovation loans. If you’ve found a home in a great location that requires some updates or you’ve been waiting to sell your home to upgrade or downsize, our renovation programs may offer relief!

In addition, US News is predicting an increase of accessory dwelling units built next to existing homes and smaller, multifamily housing will become more common in dense urban areas as housing alternatives.

What is the Consensus on Mortgage Rates?

Many economists are predicting rates will settle below the pre-pandemic’s historical rate of 8% however, inflation has to cool first. The Federal Reserve uses monetary policy tools and the Federal funds rate to help control inflation. Housing Wire reports The Federal Reserve raised the Federal funds rate by 25 bases points on February 1, a major difference from the typical 75 bases points that began in March 2022, indicating that inflation is improving. While the Federal Reserve does not directly affect mortgage rates, their point adjustments often reflect in interest rates.

As noted in the graph below from Freddie Mac*, interest rates are already starting to correct from their high in November, 2022. As the economy corrects itself and the Federal Reserve begins to regulate their rate hikes, housing affordability will continue to improve. A lower interest rate can increase the pool of eligible homes for would-be buyers.

Mortgage rates will be crucial in the discussion of housing affordability this year. If rates were to continue to lower, it would increase the amount of people willing to downsize or move out. Many people had been reluctant to be rid of their homes during the pandemic so they could hold onto their previously low mortgage rates.

Where Do We Go from Here?

CNN is predicting a “return to the traditional seasonality” of the real estate market. This would include inventory rising through February and carrying into the summer, with prices peaking in May or June and slowly declining until the end of the year.

Wherever we land in the market, one thing remains the same: our commitment to our borrowers and customers. With programs like Lock and Shop and Power Buyer, Homestead Funding is always creating solutions for purchases. If your home is no longer meeting your needs, consider one of our renovation programs! Our goal is to make homeownership achievable, so contact us today to learn how we can help you!

Sources: CNN Business, Housing Wire, Realtor.com, US News

*Actual rates may vary based on several factors and are subject to change at any time. This chart is sourced from Freddie Mac and is being used for illustration purposes only. This is not a rate quote.