2023 Expert Housing Market Predictions

Compared to 2021, 2022 has been a very different year for anyone who works in and around housing. But what does that mean going forward? We looked at a variety of expert predictions on what will happen in the housing market come 2023. Here’s our assembly of prognostications from around the industry.

In a previous life, I worked as a journalist for a local newspaper. It was my last day with this particular publication and they needed something I could finish that day so there wouldn’t be any loose ends. I was assigned the weather report and you can probably guess where this is going.

I called the meteorological service and the man said that snow in the area wouldn’t start for another 4 hours or so. I file my story maybe half an hour later and look outside: it’s snowing. The future is really hard to predict.

The housing market has undergone significant change in the last year. When that happens, it becomes more difficult to forecast things, especially at a national level when things are changing so rapidly on the ground. Odds are you know which way the wind is blowing in your local markets. However, everything hits each market at different times, so the forecast may give you an idea of what’s expected moving forward.

Now that we’ve established that all this could change, what do the experts think is actually going to happen? We looked at data from Fannie Mae, Freddie Mac, the Mortgage Bankers Association (MBA) and the National Association of Home Builders (NAHB).

Our analysis will touch on three different categories: housing inventory, house prices and mortgage rates. Will also start each section with a look at where these metrics currently stand.

Housing Inventory

Because every purchase we make is governed by the law of supply and demand, housing inventory plays a huge role in home prices and thus home affordability.

Fannie Mae, the MBA and NAHB all do forecasting around housing starts, but before we get there, let’s discuss current day. According to the new residential construction report from the Census Bureau for October, current housing starts are at 1.526 million on an annual basis.

NAHB seems like a logical place to start with this because they actually build the houses. They project housing starts to fall 8.89% to 1.401 million. Meanwhile, the MBA sees inventory at 1.472 million in its forecast. Finally, Fannie Mae is forecasting starts to come in at 1.137 million.

On the existing home sales side, no one tries to make any predictions in terms of what inventory will look like, but it’s at a very low 3.3 months relative to the current pace of sales, according to the National Association of REALTORS^® (NAR). For context, the market is usually considered in balance between buyers and sellers when there is about 6 months’ worth of inventory. So that’s one thing leading to higher prices.

Part of the reason that existing home sales aren’t predicted is that they are heavily dependent on where rates are. People are less likely to put their home up for sale if they only expect to get another one with a potentially higher payment. But there is much disagreement over where rates will be in 2023. We’ll get there.

Home Prices

Home prices have an obvious impact on affordability. As of October, the average price of an existing home according to the same NAR data was up 6.6% from the previous year at $379,100. On the new residential sales end, the median price of an existing home was $493,000. Most homes are coming in at $300,000 or higher.

The NAHB doesn’t keep data on prices, but Freddie Mac makes its predictions, so let’s start there. They see prices falling 0.2% in 2023. Meanwhile, Fannie Mae sees prices falling 1.5%

The MBA reports its forecast a little bit differently than the other two. They project a median price for both new and existing homes. Based on their weighted average of the number of sales for these categories, they project overall prices to fall 2.3%.

Mortgage Rates

Of course, mortgage rates are probably the first statistic everyone pays attention to and this is where there’s the most disagreement over what’s going to happen heading into next year.

The data point that’s probably the most trusted in this area is the Primary Mortgage Market Survey from Freddie Mac. The latest reading showed the 30-year fixed at 6.31%.

Since the industry relies on Freddie Mac for a weekly read, let’s start there. They estimate the average 30-your mortgage rate for 2023 at 6.4%. Meanwhile, the NAHB sees mortgage rates settling at 6.74% for the same term. Fannie Mae sees the average rate right around there at 6.8% next year. The MBA is projecting a 5.2% decrease.

As you can see, there is some pretty wild variation in projections for next year. When you’re talking about a transaction involving hundreds of thousands of dollars, even half a percentage point can make a big difference. So this is the area where it seems like everyone is just reading the situation and taking their best guess.

If you believe one of the sources and they turn out to be right, it could mean a lot because you would be able to give your clients advice on the future that was tailored to their specific situation. It’s a gamble assuming any of these are going to be right. The Federal Reserve is as plugged in as anyone, and it kept saying inflation was transitory.

At best, these forecasts should give you something to think about and you can compare them to what’s happening in your markets. When it comes to your clients, it’s impossible to know what’s going to happen, so it’s best to just advise them to buy when they’re ready.

Our Inflation Buster is a 1-year temporary buydown. In a year, rates could very well be lower and they could refinance with reduced closing costs using our Rate Drop Advantage.^1,2,3

Forecasts can be useful in helping you predict trends that may come to your market in the near future, even if they are not perfect. If nothing else, they’re interesting watercooler conversation for those of us in the real estate industry. Just don’t stake your fortune on them.

There seems to be broad agreement that housing starts are going to fall amid still elevated rates in 2023. This means low inventory. At the same time, home prices are expected to drop slightly. Finally, there seems to be no agreement on where rates are going.

If you’re looking for something actionable, just keep doing what you always do and give your clients the best advice you can for their situation. You have a better idea of what’s happening on the ground than any national forecast. But these can be fun to look at.

¹If client locks their initial rate on a purchase loan between 9/15/22 and 3/30/23 client’s loan is eligible for the promotional Inflation Buster offer. The promotional offer will effectively reduce the rate by 1% for the first year of the mortgage; a custodial escrow account will be funded by the lender-paid credit, up to a maximum amount of $9,708, and funds will be dispersed from the escrow account to the investor to account for the difference in interest during buydown period. Offer valid only on primary residences and second homes through Fannie Mae and Freddie Mac. Offer not valid on non-agency Jumbo Loans, Interest Only loans, 2nd lien products, bank statement loans, and manufactured homes. Offer only valid on 15, 20 and 30 year fixed-rate conventional conforming and government purchase loans in retail channels. Offer may not be redeemed for cash or credit and is nontransferable. Offer cannot be retroactively applied to any loans and may not be used with any other discounts or promotions. This offer is subject to changes or cancellation at any time at the sole discretion of Rocket Mortgage. Additional restrictions/conditions may apply. This is not a commitment to lend and is contingent on qualification per full underwriting guidelines.

² If client locks their initial rate on a purchase loan between 7/19/22 and 3/30/23 and that loan closes, client is eligible for Rate Drop Advantage. Refinance offer must be claimed by locking initial rate between 120 days and 36 months from purchase closing date. Refinance loan must be on the same subject property as the original purchase loan. Rocket Mortgage will cover the following fees as a lender paid credit: first appraisal fees, credit report, tax certification, mortgage recording fee, flood certification and life of loan, notary fees in Pennsylvania and New York, and if a conventional loan, processing and underwriting fees. Rate Drop Advantage is only valid on conventional conforming and government loans in our retail channels. Offer may not be redeemed for cash or credit and is nontransferable. Offer cannot be retroactively applied to any loans. Offer may not be used with any other discounts, promotions or interest-only/buy-down and second lien products. This offer is subject to changes or cancellation at any time at the sole discretion of Rocket Mortgage. Additional restrictions/conditions may apply. This is not a commitment to lend and is contingent on qualification per full underwriting guidelines.

³ Refinancing may cause finance charges to be higher over the life of the loan.