Americans looking to buy a home next year can expect less competition, more homes to choose from and the highest average mortgage rates in nearly two decades. Here’s what they can’t expect: a widespread fall in prices that would bring relief to discounted homebuyers.
That’s the main takeaway from Realtor.com’s 2023 Housing Prediction released Wednesday. The decline in home prices “might not be as fast as some expected,” said Danielle Hale, Realtor.com’s chief economist. Prices will increase in the first half of 2023 and will likely fall or remain flat in the second half of next year, she told CBS MoneyWatch.
“We expect 2023 to be higher for the year as a whole,” Hale said. “Shoppers who want to buy may have to wait a while.”
The housing market will soon turn the page to 2022, a year with sky-high mortgage rates alongside rising house prices. Some cities in particular – such as Boise, Idaho; and Austin, Texas — saw double-digit percentage price increases. The rising cost of homeownership deterred many would-be buyers, who instead chose to continue renting.
Home prices have fallen in many areas over the course of 2022, but mortgage rates have continued to rise. The average interest rate for a 30-year mortgage was around 6.6% this week, more than double the rate at the start of the year.
Realtor.com expects mortgage rates to rise even further early next year as the Federal Reserve continues to raise its benchmark interest rate. Mortgage rates could rise to 7.4% in the first half of 2023 and fall to about 7.1% in the second half of the year, the company said. Looking at increases in real estate prices and borrowing rates, the typical monthly mortgage payment will be about $2,430 next year, 28% higher than this year, Realtor.com predicted.
The rapid price increase has hindered many potential buyers. In a recent survey by LendingTree, nearly half of the respondents said they postponed important decisions, either renting for an extended period of time or putting off major home renovations.
Mortgage rates rose so fast this year that they made it hard for buyers to figure out how much house they could afford, Hale said. In 2023, interest rates probably won’t fluctuate as much, she said.
“More stability will make it easier for buyers to set the right budget,” she said. “And that should help get people back on the housing market.”
Largest metropolitan areas
Home prices are likely to rise in the country’s 100 largest metropolitan areas, the Realtor.com report said. Expect 10% hikes in Grand Rapids, Michigan; Portland, Maine; Providence, Rhode Island; Spokane, Washington and Worcester, Massachusetts.
Higher prices are likely to keep many potential homebuyers away, driving rents up 6.3% and home sales falling 14%, according to Realtor.com. However, the housing stock – the number of homes for sale – is expected to rise by nearly 23% next year, giving those who can afford it a wider variety of homes to choose from.
Of course, all of these predictions could change depending on how the Federal Reserve handles its battle against inflation next month and early next year, Hale said. The Fed hassix times this year, and with each increase, mortgage rates have also risen. Hale and other economists expect the Fed to raise rates again next month, but perhaps not as much as previous hikes.
“The housing market has taken the brunt of the Fed’s attempt to control inflation,” said Sean Black, CEO of mortgage lender Knock, in his company’s 2023 housing forecast. the nation’s largest subways, and many will continue to favor vendors well into 2023.”