Many Homebuyers Likely to Be Priced Out of Market In 2023

Homebuyers looking for a reprieve from sky-high prices may be disappointed next year.

Realtor.com’s 2023 Housing Forecast predicts that as the housing market begins a “gradual adjustment” the firm says could last through 2025, “what next year will offer buyers is less competition for a growing number of for-sale homes.” Buyers and sellers can expect average mortgage rates of 7.4% next year, with early 2023 hikes followed by a slight retreat to 7.1% by year-end, while home price growth will moderate to a single-digit yearly pace of 5.4% for the first time since 2020.

Rents are still expected to outpace home prices, accelerating 6.3% year over year, and Realtor.com says they’ll probably hit new highs, further constraining first-time buyers’ budgets. Incomes are expected to grow by just shy of 4% in 2023, but analysts say that isn’t enough to offset higher mortgage rates and home prices.

The typical monthly mortgage payment next year is predicted to be $2,430, 28% higher than in 2022, which “will likely price many home shoppers out of the market,” according to Realtor.com.

Despite that, Realtor.com predicts an increase in existing homes for sale of 22.8% year over year while home sales are predicted to decline 14.1% year-over-year to 4.53 million, the lowest level since 2012. Interestingly, the firm predicts a possible “second wind” in the second half of 2023, since the spring buying season will likely be less busy as interest rates are projected to continue through March. If rates dip later in the year, demand may be higher, fueling more sales.

“Compared to the wild ride of the past two years, 2023 will be a slower-paced housing market, which means drastic shifts like price declines may not happen as quickly as some have anticipated. It will be a challenging year for both buyers and sellers, but an important one in setting the stage for home sales to return to a sustainable pace over the next two to three years,” said Danielle Hale, Chief Economist for Realtor.com. “With mortgage rates continuing to climb as the Fed navigates the economy to a soft-ish landing, higher costs will lead to fewer closings, but that doesn’t mean homebuying will stop entirely in 2023. Americans who are determined to make a move will find that staying up-to-date on the market, flexibility, creativity and a healthy dose of patience will go a long way toward success in the year ahead.”