It’s the hottest topic in my life – where is the market headed in 2023? With another interest rate increase coming – I know my buyers are cringing as they figure out their next steps and some of my sellers are getting ready to list before the market adjusts too much. I thought I’d share this article from Wells Fargo…
Housing Outlook 2023
The recent rise in mortgage rates has deflated optimism for a robust recovery in home sales. Even if higher in the near term, we currently expect mortgage rates to trend lower over the course of this year and next.
Affordability stands to improve slightly this year. While financing costs are likely to remain elevated, easing inflation should help boost real income growth.
Home prices declining should provide an additional boost to affordability. We continue to expect home prices to register year-over-year declines in 2023, with the national median existing single-family home price anticipated to fall 4.5% during the year.
Slightly more favorable affordability conditions should help home sales stabilize and even improve a bit this year. That said, we expect the overall pace of activity to remain sluggish.
While sales should be more lively in 2023 compared to the second half of last year, there is another potential challenge waiting down the road. Our current macroeconomic forecast calls for a mild recession to begin in the second half of 2023. Unfortunately, even mild downturns bring about rising unemployment, decreased job security and a slowdown in household formation, all of which would be formidable headwinds for housing.
Builder incentives have proved successful in reigniting new home sales, however, single-family permits continue to trend lower. Stronger new home sales are not likely to translate into a turnaround new development until builder inventories move lower from their currently elevated levels. Consequently, we expect single-family construction to remain relatively slow this year.
Weakening residential activity has not been experienced uniformly across the country. The affordability migration has given way to strong population and employment growth in the South, which has generally bolstered activity in those areas. Conversely, population outflows and tech industry turbulence have led Western markets like Seattle and San Francisco to experience declines in home sales and prices.
Supply is tight almost everywhere, which is helping prevent sharp declines in home values. Broadly speaking, significant inventory shortfalls in the Northeast have helped to shore up prices in 2022. By contrast, higher inventory levels in Mountain West appear to be generating faster price declines.
Senior Economist | Wells Fargo Economics
Charles.Dougherty@wellsfargo.com | 212-214-8984
Economist | Wells Fargo Economics
Jacqueline.Benson@wellsfargo.com | 704-410-4468
Economic Analyst | Wells Fargo Economics
Patrick.Barley@wellsfargo.com | 704-410-1232
All estimates/forecasts are as of 3/1/2023 unless otherwise stated. 3/1/2023 9:57:22 EST. This report is available on Bloomberg WFRE40%
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