Housing Market Forecast
With the economy cooling, mortgage rates at above 6%, FED unease about inflation, and the debt ceiling crisis, it’s not surprising the homebuyer’s view of the short term housing market is not good.
Since home prices rose 3.5% again in April, despite crippling mortgage rates and consumer fears, we can forecast better conditions ahead for 2024 and the next 5 years. Buyers have funds, yet few affordable houses are available, and the mortgage payments are a big issue. As interest rates fall over 2024, will buyers will jump back into the market?
RE/MAX, LLC President and CEO Nick Bailey said “The data tells a story, but it’s just one side of the story. Sales may be down across the U.S. as move-up buyers, who like their current mortgage rate, choose to stay in their homes. But first-time homebuyers are active and those entering the market have an edge as sellers are negotiating more and giving buyers a chance.”
Yet, as we discuss here, the view from 2024 to 2027 is better. It looks like homebuyers are in for a tough time with high prices, low inventory, and high mortgage rates. We may need to see inflation drop another 3% before we see a housing market turnaround.
However, this chart from Ycharts shows that yearly momentum is up, not headed for a housing market downturn. If you view the prices of California homes by city, you see huge price gains over three years. And given buyer demand and wealth, and that real estate would be preferred in the event of a stock market crash, housing seems to be a clear winner with a good future as an investment.
Most Americans still believe buying a home is a good decision, but they’re aware that the 6 month, one year and 5 year housing market forecast are very different. The political situation could keep the stock market and the housing market uneasy and volatile.
Homeowners are staying put even in the face of a potential market downturn from excessively high mortgage refinance rates and a debt crisis showdown in Washington. And renting is not a good option. Redfin reports that are only four major U.S. metropolitan areas where it’s cheaper to buy than rent a home.
American investors are still sitting on a lot of cash, people who can buy homes. They’re hovering over the 6 month and 5 year stock forecasts to pick the time to buy, but they may decide to buy a home too after backing out of deals recently. See the stats for Florida and California.
What Happened in April
April’s home sales numbers across the US slipped 3.4% last month and that is down 23.2% from April 2022. Inventory grew 7.2% from March but is up only 1% from one year ago. There is still a shortage of ideal houses and condos available at affordable prices, so the stats don’t tell the whole story.
NAR Chief Economist Lawrence Yun stated that “Home sales are bouncing back and forth but remain above recent cyclical lows and, the combination of job gains, limited inventory and fluctuating mortgage rates over the last several months have created an environment of push-pull housing demand.”
Home prices declined 1.7% in April to the new median of $388,800, a drop of 1.7% from April 2022 ($395,500). It’s a tale of markets as prices rose in the Northeast and Midwest but retreated in the South and West. “Roughly half of the country is experiencing price gains.” In the expensive West region, multiple-offer situations have returned in the spring buying season.” Yun noted.
Single-family house sales fell 3.5% to 3.85 million in April, from 3.99 million (seasonally adjusted) in March and down 22.4% from 12 months ago. single-family house prices were down 2.1% $393,300 vs April 2022.
Existing condo/co-op sales fell 2.35 from March and are down 2.95% from one year ago. The median existing condo price rose .7% in $348,000 year over year.
In the Northeast region, home sales fell 1.9% from the previous month and that’s down 23.9% from April 2022. Median condo prices were up 2.8% to $422,700, vs April, 2022.
In the Midwest region, sales eased 1.9% from March, and are down 21.5% from April 2022. Home prices rose 1.2% to $287,300, and were up 1.8% from April 2022.
In the South region, home sales dropped 3.4% from March, and that is a 20.2% decline from 12 months ago. Prices in the South fell .6% to a new median price of $357,900, which was down 0.6% from April 2022.
And in the West, sales dropped 6.1% vs March numbers and that is a big drop of 31.3% from April 2022 The median price in the West fell 8.0% from April 2022.
Freddie Mac reported that the 30-year fixed-rate mortgage averaged 6.35% (May 11) down from 6.39% the previous week but up from 5.30% one year ago. FED noise about raising interest rates further might rattle many buyers.
All-cash sales accounted for 28% of transactions in April, up from 27% in March and 26% from 12 months ago.
What’s the Forecast for the rest of 2023?
That depends on political events. FED chair Powell says inflation is still a problem and won’t be beaten for a while. Consumers however a little soured and are cutting their spending. They may not be losing their jobs and more are being created.
Mortgage rates and home loan qualification are critically important. Nadia Evangelou, senior economist and director of real estate research at NAR, poses 3 mortgage rate scenarios for 2023:
- if inflation remains above expectations, the Fed could raise interest rates repeatedly for mortgage rates near 8.5%
- the CPI eases against Fed’s rate hikes resulting mortgage rates near 7 to 7.5 percent for the rest of 2023
- Fed gets more aggressive, perhaps overshooting its goals, with the economy going into a recession resulting in mortgage rates only dropping to 5%.
It appears it’s all about the FED in NAR’s eyes.
See more on the Atlanta housing market, Boston housing market, New York housing market, Florida housing market and California housing market. Also, see reports on Los Angeles, San Diego, Dallas, San Antonio, Austin, Houston, Denver, Sacramento, San Francisco, Chicago, Salt Lake, Boca Raton, Tampa, Miami, and Seattle.
See more on the 5 year real estate forecast along with the 5 year stock market forecast for more context.
Home Sales Trends 2023
The chart below from NAR shows us the steep year over year declines in sales, and shows us where we’re headed as the Fed rate increases during 2023. Those having to renew their mortgages will be under pressure, perhaps to sell as living “house poor” takes its toll. As unemployment increases, more homes will pour into the market.
What About Zillow’s Outlook?
Zillow in its latest housing report expects a drop of home sales in 2023, to 4.3 million existing home sales in 2023, compared to 5 million sales in 2022. And they see home prices rising over the year by 0.6% well down from previous forecasts.
Home values in Zillow’s index climbed 0.1% during February, for a new home price average value at $328,604, or 3% below the peak value set in July 2022.
Redfin reported home prices dropped 1% in February, the first yearly declined since 2012 (4 years after the financial crisis began).
“Buyers are struggling because higher interest rates have increased the cost of homeownership, and sellers are struggling because they’re still adjusting to the fact that their home won’t sell for what their neighbor’s did a year ago,” said Andrew Vallejo, a Redfin real estate agent in Austin, TX.
NAR’s 2023 Forecast
The National Association of Realtors™ forecasted home prices in 2023, would rise 5.4% during 2023, while mortgage payments would grow 28%. They believe inventory will increase by 22.8% yet will be lower than pre-pandemic 2019. Yet, inventory increases do not appear to be happening.
What do Homebuyers Believe?
Homebuyers are willing to pay less for a home purchase and they believe mortgage rates are going to climb. That suggests they see no openings for them in the market in 2023.
Indeed mortgage rates have risen faster than ever. Freddie Mac, posts that the 30-year, conventional, fixed-rate mortgage rose 6.11% in October vs September. That same mortgage rate in 2021 averaged 2.96%.
Fannie Mae reports the record pandemic pessimism that US consumers felt is easing this spring. In April, their mood grew significantly to 66.8.
Latest Home Prices: NAR
Market Factors
Here’s some factors that suggest home prices will decline however the question of whether there might be a housing market correction or crash is unsettled (stock market experts expect a big 20+% correction soon so we know risk is very high).
- inflation looking like it will persist in 2024
- democrats may not get the no2 $7.2 billion in the budget nor the tax raise they want
- deglobalization is altering supply chains leaving gaps in supply
- international trade tensions rising further by 2024
- commodity prices heading back up with China reopening
- natural gas and oil prices seem to be sagging for now (Biden won’t buy back significant oil reserves before the 2024 election).
- consumer sentiment at very low levels and will likely fall after recent economic news
- consumer savings depleting every month
- jobless claims are stable, and employment in some sectors/states did get hit
- mortgage rates continue rising quicker than the Fed rate thus stymieing homebuyers
Rental Housing Report
Given buyers can’t buy a house or condo, they are plunged into an already diminished rental marketplace. This has resulted in big rent increases, and in some cities this growth remains in many cities where Americans are migrating to.
With the economy cooling however, rent growth has dropped strongly, but still remains above 6% nationally. That makes rental properties the hottest investment going. Some cities such as Miami, Jersey City, New York City Manhattan, San Jose, Fort Lauderdale, Honolulu, St Petes, and Philadelphia are seeing brisk rent price growth.
Home Buyer and Home Sellers Decision
The US economic forecast is very uncertain so forecasting home prices in the next 3 to 6 months, or next 5 years is more than just difficult. However, we can feel confident that home prices will stay elevated and that real estate investors and buyers will find homes holding their value for many years, even past a recession.
Contradictory factors complicated decision to buy:
- home price history timeline charts show prices keep rising faster than inflation
- affordable housing shortages wont’ be fixed anytime soon – endless demand
- rising US immigration and more migration to low tax states
- millennials still need to buy to start their families
- rent prices are rising too fast which eats down payments and savings
- those buying in high tax states could see lower prices
- weak political support for new housing zoning and builder assistance
- a Republican mid term election may encourage investors that the future is brighter
- it’s the only investment you can live in
- mortgage rates will likely recede once this current economic crisis eases (after recession)
- big fortunes from investing in the stock market are over now
- young adults more aware of financial planning, retirement, and long term value of a house
- rental income properties offer excellent returns, rising rents, and good tax writeoffs
- deglobalization means growing investment in US businesses and supply chains
Will home prices drop and is a housing crash possible? Experts say not likely because demand is too high and buyers do have money to purchase houses.
Stats show the luxury homes market isn’t being affected much (see stats below) so wealthy buyers aren’t anticipating a stock market crash or a housing market crash in the US. Home sales in the south are seeing a steep change and markets such as Austin Texas look very shaky with huge increases in inventory.
Buyers still can buy via 5 year adjustable rate mortgages, fully knowing that rates in the years ahead will be lower.
New Home Construction and Sales Forecast
By no means will new home construction make a dent in the demand for housing. As this chart below shows, permits, starts and completions are on the wane and the forecast for 2023 has to be for fewer homes being constructed. It’s a bad time for a recession and high interests as much more inventory is needed in the housing market.
With lower interest rates in 2024, we can foresee a resurgence in home construction in the next 5 years, however it will not meet demand. Which means new home prices should climb.
Stats for Major US Metros
Interested in your local real estate market? See the metro reports for Boston, Atlanta, New York, Philadelphia, Los Angeles, San Diego, Bay Area, Dallas, Denver, Houston, Chicago, and Miami. See also reports for smaller centers including Salt Lake City, Austin, Colorado Springs, San Antonio, Tampa, Seattle, and Manhattan.
28 Key Factors Driving the Home Buy/Sell Decision for 2023
- stronger economic recovery was expected in 2nd half and may happen if debt ceiling agreement is reached
- FOMO fear of missing out amidst a recovery
- fear of having to rent and be exposed to homelessness
- millennials and even Gen Z’s forming new families and need a house
- staying put — homeowners have nowhere to go thus can’t sell
- home buyers want homes in more suburban and rural areas
- work from home expected to continue although not like it was in 2021/2022, as many are returning the big metros
- government will spend more stimulus money because they want to ensure the jobs and housing markets don’t stagnate
- Fed promised to keep interest rates down but may raise them
- supply of homes making it unlikely many will be able to buy
- new home construction, material and land prices rising faster
- foreclosures may free up some homes for sale
- migration: work from home still driving buyers out of the cities for more room for a home office, backyard, space to relax
- migration: businesses moving out of high tax states to lower-tax states
- inflation plus money supply plus need for housing could inflate house prices severely
- buyers holding high-value stock portfolio’s could sell to buy a home
- buyers see a house as a potential rental income property
- many sellers want to get out of the city they live in for something new after a horrible pandemic period
- real estate is a preferred asset when cash, savings, and stocks can only go down in value
- cities and regions will still not allow housing development (NIMBYs) thus more demand for the limited available stock of homes
- homes are a safe haven (those renting saw how insecure their week to week lifestyles are where they could be left with nothing later in life, and wondering whether social security will even over their bills)
- speculation (real estate investors including the new crowdfunding buyer who can take more risk don’t see a big downside to real estate and are willing to pump money in for houses or rental properties)
- as employment grows there will be more demand for homes in 2021, 2022 and for 5 years ahead
- states such as Texas, Florida, Arizona drawing new residents (climate, jobs, business growth, low taxes)
- Los Angeles, San Francisco, New York losing residents (cost of living, taxes, failing economies)
- global economic growth will hit 4% in 2021 (world bank report)
- mortgage renewals — 225,000–500,000 homeowners could face foreclosure this year if rates go up
- homelessness and crime in the major cities will become a negative factor driving people out of the cities to the suburbs and smaller rural towns
There is no consensus on the housing market’s outlook given political battles and uncertainty about how inflation will play out and how the FED will react. The FED is not credible as a forecast source given the misstatements and predictions they’ve made.
All markets, including Los Angeles, San Diego, Denver, New York, Manhattan, Dallas, Boston, Philadelphia, Atlanta, Chicago, Austin, San Antonio, Salt Lake City, Tampa and Miami, will likely see flat home prices in 2023 and 2024 but see growth beyond that to 2027. Florida and Texas are still booming while California’s housing market forecast is looking a little brighter.
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