Real Estate Forecast for 2023…

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

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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.

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Affordability stands to improve slightly this year. While financing costs are likely to remain elevated, easing inflation should help boost real income growth.

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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.

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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.

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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.

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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.

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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.

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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.

Economist(s)

Charlie Dougherty

Senior Economist | Wells Fargo Economics

Charles.Dougherty@wellsfargo.com | 212-214-8984

Jackie Benson

Economist | Wells Fargo Economics

Jacqueline.Benson@wellsfargo.com | 704-410-4468

Patrick Barley

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%

Read it all below…

wells-fargo-market-forecast-3.1.23 Download

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This report is produced by the Economics Group of Wells Fargo Bank, N.A. (“WFBNA”). This report is not a product of Wells Fargo Global Research and the information contained in this report is not financial research. This report should not be copied, distributed, published or reproduced, in whole or in part. WFBNA distributes this report directly and through affiliates including, but not limited to, Wells Fargo Securities, LLC, Wells Fargo & Company, Wells Fargo Clearing Services, LLC, Wells Fargo Securities International Limited, Wells Fargo Securities Europe S.A., and Wells Fargo Securities Canada, Ltd. Wells Fargo Securities, LLC is registered with the Commodity Futures Trading Commission as a futures commission merchant and is a member in good standing of the National Futures Association. WFBNA is registered with the Commodity Futures Trading Commission as a swap dealer and is a member in good standing of the National Futures Association. Wells Fargo Securities, LLC and WFBNA are generally engaged in the trading of futures and derivative products, any of which may be discussed within this report.

This publication has been prepared for informational purposes only and is not intended as a recommendation offer or solicitation with respect to the purchase or sale of any security or other financial product nor does it constitute professional advice. The information in this report has been obtained or derived from sources believed by WFBNA to be reliable, but has not been independently verified by WFBNA, may not be current, and WFBNA has no obligation to provide any updates or changes. All price references and market forecasts are as of the date of the report. The views and opinions expressed in this report are not necessarily those of WFBNA and may differ from the views and opinions of other departments or divisions of WFBNA and its affiliates. WFBNA is not providing any financial, economic, legal, accounting, or tax advice or recommendations in this report, neither WFBNA nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this report and any liability therefore (including in respect of direct, indirect or consequential loss or damage) is expressly disclaimed. WFBNA is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company. © 2023 Wells Fargo Bank, N.A.

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