Home sales could plunge in 2023. These cities may see the worst.
Home sellers should brace themselves for a tough year ahead, with one real estate group forecasting that property sales could tumble in 2023 as more buyers are sidelined by rising mortgage rates and out-of-reach home prices.
The number of homes sold will likely plunge 14.1% to 4.53 million homes, representing the lowest number of property transactions since 2012, when the U.S. was still recovering from the housing crash and Great Recession, according to according to Realtor.com’s 2023 Housing Forecast.
The pandemic triggered a massive boom in real estate sales, bolstered by a combination of record-low mortgage rates and work-from-home-orders from many employers. Since early 2020, home prices have surged almost 40%, while mortgage rates have more than doubled since year-start, a double-whammy that has priced many buyers out of the market.
Sellers may feel the brunt of that impact next year, according to the new Realtor.com forecast.
“High home prices and mortgage rates [will] limit the pool of eligible home buyers” in 2023, it said.
Home sales are expected to dip the most in California and Florida. The biggest decline in sales volume will be in these cities, Realtor.com forecasted:
Ventura, California: A decline of -29.1%San Jose, California: -28.8%Bradenton, Florida: -28.7%San Diego, California: -27.3%Palm Bay, Florida: -18.3%Los Angeles, California: -15.8%Tampa, Florida: -15.6%Tucson, Arizona: -14.7%Fresno, California: -13.7%San Francisco: -13.3%Possible bright side for sellers
If there’s a bright side for sellers, it’s that the average sales price in the nation’s top 100 markets is likely to increase next year by an average 5.4%, according to Realtor.com’s 2023 Housing Forecast.
Not everyone’s outlook on home prices in 2023 is as sunny. Some economists are predicting that real estate values could plunge by as much as 20% next year due to the surge in mortgage rates and economic uncertainty.
Even though Realtor.com is forecasting higher housing prices next year, the pace of escalation represents a slower rate than the blistering increases of the past two years. Prices will be elevated during the first half of 2023, but are likely to fall or stay flat during the second half of next year, Realtor.com’s Chief Economist Danielle Hale told CBS MoneyWatch.
“We expect, for the year as a whole, 2023 is going to be higher,” Hale said. “Shoppers who want to buy might have to wait a little bit.”
The elevated prices will be more dramatic in some cities than others, Realtor.com predicted. Metro areas that could see the sharpest increases are:
Worcester, Massachusetts: 10.6%Portland, Maine: 10.3%Grand Rapids, Michigan: 10%Providence, Rhode Island: 9.8%Spokane, Washington: 9.6%Springfield, Massachusetts: 8.9%Boise, Idaho: 8.7%Chattanooga, Tennessee: 8.2%Indianapolis, Indiana: 7.8%Milwaukee, Wisconsin: 7.7%
Those higher prices could be discouraging for buyers who have already faced sharply higher real estate valuations in 2022. Some cities in particular — like Boise, Idaho; and Austin, Texas — saw double-digit percent increases this year.
The rising cost of homeownership deterred many aspiring buyers, who have opted instead to continue renting. In a recent survey from LendingTree, nearly half of respondents said they were postponing major decisions, either renting for longer period of time or putting off major home renovations.
Home prices have fallen in some areas during the tail end of 2022, but mortgage rates have continued to climb. The average interest rate for a 30-year fixed mortgage was about 6.6% this week, more than double what the rate was at the start of the year.
Realtor.com expects mortgage rates to climb even further at the beginning of next year as the Federal Reserve continues to raise its benchmark interest rate. Mortgage rates could reach as high as 7.4% in the first half of 2023 before settling down to around 7.1% toward the second half of the year, the company said.
The combination of higher home prices and mortgage rates in 2023 could push the typical monthly mortgage payment in 2023 to $2,430, or 28% higher than this year, Realtor.com predicted.
Mortgage rates rose so quickly this year that it was at times difficult for buyers to figure out how much home they could afford, Hale said. In 2023, interest rates probably won’t fluctuate as much, she said.
“Having more stability will make it easier for buyers when setting the right budget,” she said. “And that should help encourage people to get back into the housing market.”
With buyers sitting on the sidelines, the number of homes available for sale is expected to climb nearly 23% next year. The upside for buyers is a greater variety of choices, while sellers will be facing more competition.
To be sure, all of these predictions could change depending how the Fed handles its fight against inflation next month and early next year, Hale said. The Fed has raised its benchmark rate six times this year, and with each hike mortgage rates have climbed as well. Hale and other economists expect the Fed to raise its rate again next month, but perhaps by not as much as previous increases.