Home Buying is Expected to Slow Down, but Should Pick Up in 2023
The building of new homes declined slightly in December 2022. High mortgage rates were most likely to blame. This decline in new home construction indicates a slowdown in the housing market in 2023.
With mortgage rates doubling over the past year, home construction and sales appear to have stalled. Yet, the Federal Reserve’s raising of interest rates to calm inflation seems to be working and an overall slowdown in the economy may increase home buying later this year.
Inflation and Home Buying in 2023
By the end of last year, the Federal Reserve’s efforts to slow inflation by raising interest rates impacted the housing sector. In December, the sales of existing homes dropped by 1.5%. While the drop was not as severe as anticipated, it did reflect the eleventh straight month of decline.
New home sales also finished off the year with a 0.7% decline. This represented a modest decline but reflected an overall slump in the housing sector.
However, inflation now seems to be settling down, and mortgage rates stand a good chance to decrease in 2023. The early part of this year should still see higher inflation and interest rates. So, a boost to the housing market will take some time to develop.
Economists predict that hidden demand in prospective buyers will take around six months to materialize. Unemployment is expected to rise initially, which will delay buying of homes.
Yet, as the economy slows down, some homeowners will decide to sell while the Federal Reserve eases up on interest rate hikes. The long-term projection then is that home buying will increase.
A real estate and finance professor at the Wharton School, UPenn, has predicted a 5% to 10% decline in housing prices in 2023.
Along with this prediction, the slowdown and recovery in housing are marked by regional variations.
U.S. Regions and Home Buying
In 2022, national mortgage rates doubled while housing prices remained the same or increased. In some regions, the situation was particularly difficult for home buyers and sellers.
California is one of the most expensive states in the nation. Surprisingly, home prices in this state decreased slightly compared with 2021. The median sale price for a single-family home was listed at $777,500 in November of 2022, compared with $782,480 in November 2021.
However, with rising interest rates, many potential California buyers still find home buying to be unaffordable. And, some areas within the state saw increases in housing prices. For example, Los Angeles home prices went up in 2022, as did Sonoma and Napa.
For sellers, decreased housing prices have impacted some areas more than others. San Francisco has witnessed declining property values, with the median home price falling 21% in November 2022, compared with the previous year.
While experts predict a minor weakening in the overall housing market in California, some metropolitan areas will be more advertising affected. San Jose, for example, is an area where housing values are expected to fall by 7% or more.
Thus California, like most of the nation, will not witness a housing crash but is expected to see significant declines in major cities.
Other areas like Montana have witnessed a stall in the housing market. In 2021 and 2022, property buying increased in places like Missoula. But then the buying slowed substantially and is anticipated to remain this way for the early part of 2023.
Minnesota witnessed a similar trend from 2021 to 2022. In 2021, housing sales increased to a 20-year high and continued into early 2022. Then, the market cooled by the end of the year, especially in the Minneapolis-St. Paul area.
One of the reasons here is the supply of affordable homes. Even with a decline in home sales, Twin City home prices increased by 6% in 2022. Home construction tends to focus on higher-priced properties.
The overall national slowdown and regional dynamics will impact the housing market for worse and better this year.
Home Buying and Selling in 2023
Because the economy and housing market are uncertain and in a transition phase, home buying will likely decrease for at least part of 2023. Home prices are expected to remain about the same, or increase slightly, which could delay first-time home buyers.
Yet, in some areas, housing prices are expected to fall, and that decline could lead to more home sales. The San Francisco market, for example, is anticipated to see a 10% to 15% drop in prices.
In some locations, a buyer’s market may emerge in 2023. To learn more about the housing market in 2023, visit FreshGigsClub. For home buyers, waiting a few months into this year would be a good starting point.