Forecast of U S. House Prices
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America's central bank has hiked rates seven times this year, with its latest increase taking the benchmark lending rate to a range of 4.25 per cent to 4.5 per cent, the highest since 2007. Rachel Cruze is a #1 New York Times bestselling author, financial expert, and host of The Rachel Cruze Show. Rachel writes and speaks on personal finances, budgeting, investing and money trends. As a co-host of The Ramsey Show, America’s second-largest talk radio show, Rachel reaches 18 million weekly listeners with her personal finance advice.
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Housing Inventory Predictions for 2023
In an attempt to reign in the highest inflation rate the US housing market has seen in about four decades, the Federal reserve has increased interest rates at an alarming rate. More than doubling over the course of 2022, higher mortgage rates are slowing the housing sector. That said, sellers are finally losing the stranglehold they have had over the US real estate market for a decade. While price increases are expected to continue, the rate in which homes increase in value is expected to slow.
As year-end approaches, the housing market faces considerable downside risks. Global investment firm Goldman Sachs downgraded its forecast for US home prices in a note from October and now projects them to fall between 5% to 10% from the peak prices seen earlier this year. The firm had previously predicted a less severe drop in housing prices but says that it had updated its projection due to increased interest rates.
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This trend will be especially pronounced if companies expand operations in smaller markets leading to higher local wages that can support higher home prices. Late summer 2022 with sellers more likely to accept buyer friendly concessions and sell for below asking price (31%). “Once you start the process of prices falling nationally, there is a self-fulfilling momentum to it because no one wants to catch a falling knife,” Swonk told the outlet.
Overall the predictions for the next five years are that home price appreciation is likely to range between 15 and 25%, but they will be uneven. Millennials are expected to continue to drive the market and the participation of first-time homebuyers and older millennials is widely forecast to be elevated. Inflation, excessive housing demand, and inadequate supply continue to drive up prices.
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There is no guarantee any of these trends will come to fruition, but it is essential for investors to at least note the direction the market is heading. Doing so will enable forward-thinking entrepreneurs to be more proactive than reactive, making the difference between a good investor and a great investor. That is not to say rehabs and flips aren't viable in many markets across the country, but rather that the new U.S. housing market created in the wake of the pandemic is much more conducive to long-term rentals . While the median home value has been increasing for quite some time, the most significant gains have occurred over the last three years. New market indicators onset by the pandemic have created an environment conducive to rapid appreciation rates.
Because there are not enough houses available to meet demand, home prices will continue to rise, but the combination of rising home prices and elevated mortgage rates means fewer people will be able to afford to buy. With mortgage rates still rising (at 7.08 percent as of this writing), resulting in rapidly declining home purchase demand, home prices are expected to fall further in the near term. Some housing markets are on the verge of a drop in home values within the next 12 months. Home prices are expected to dip over the next 12 to 18 months before stabilizing and then recovering, according to experts.
And since there’s still strong buyer demand and a shortage of homes for sale, prices aren’t going to plummet. They’re softening a bit when it comes to growth—but they’ll still be higher than they were at the start of this year. While time on market is expected to slow amid fewer home sales in the year ahead, well-priced homes in highly desirable markets may still sell quickly. This means buyers shouldn’t feel undue pressure to move quickly, but should consider acting with haste when a home that meets needs and fits in the budget hits the market.
The 12-month changes were all positive, ranging from +7.4 percent in the Pacific division to +16.2 percent in the South Atlantic division. "Based on what we've seen so far, we're on track for average home prices to register right at around $330,000 to $340,000 this year," says Danielle Hale, the chief economist at Realtor.com. "These are hefty price increases. We see this because sellers ask for one price, buyers make an offer and the home usually sells for another price. This year, we saw the sale price come in above the asking price in many places." Nationally, home prices increased 11.4% year over year in September 2022.
The Goldman note also adds that further declines will be attributed to higher housing costs as "unsustainable levels of housing affordability" will continue to weigh on housing demand. The housing market has suffered from dwindling demand as the Federal Reserve's interest rate hikes drive up mortgage rates—and the cost of homebuying. According to the National Association of Realtors, existing-home sales in October fell for the ninth consecutive month to an annual rate of 4.4 million. Ushering in the declines, the average rate on the popular 30-year fixed mortgage has more than doubled over the past year to 6.49%, according to Freddie Mac. "The Fed slowing down their rate hikes will send a signal that we are close to the bottom," says Joshi. Hence, there is no clarity regarding the housing market forecast for 2023.
House prices were up 0.1 percent compared to the second quarter of 2022. FHFA’s seasonally adjusted monthly index for September was up 0.1 percent from August. Looking ahead to the entire year 2023, the ESR group predicts a 1.5% fall in national home prices. While Zillow predicts that home values will rise in most markets over the next 12 months, it does not expect much growth in the remaining months of 2022. It predicts that home values will fall in 271 markets over the next twelve months.
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