Real Estate Market Predictions for the Remainder of 2023

If you are a buyer or seller, or both, of real estate in 2023, you can easily tell that there has been a shift away from the crazy Seller's Market we saw in 2020, 2021, and the beginning of 2022. Prices are easing and homes are remaining on the market longer.

The real estate market in the US saw a rise in mortgage rates last year, which affected both demand and price appreciation. Availability of homes is no longer the main concern, although inventory still remains lower than normal, but affordability is a great factor for many home buyers. The real estate market is expected to finally stabilize due to the increase in mortgage rates. 

What will happen with mortgage rates?

Economists predict that mortgage rates will fluctuate less this year than last year. The number of home sales is expected to continue to decline this year, leading to an increase in listing inventory and days-on-market.

Realtor.com forecasts: Mortgage rates will average 7.4% in 2023, trickling down to 7.1% by year’s end.” Most of us feel that even though home prices are easing down, these high interest rates are not sustainable to keep the market healthy. In the Scottsdale real estate market, many first-time home buyers are having to reconsider a condo instead of a single-family home.

Nadia Evangelou, senior economist for the National Association of Realtors, offers three different thoughts:

1. Inflation continues to surge, forcing the Fed to repeatedly raise interest rates. In that scenario, she predicts that rates could reach as high as 8.5%.
2. Inflation decelerates and mortgage rates follow suit, averaging 7 to 7.5% for the year.
3. Rising interest rates trigger a recession, which could ultimately lead mortgage rates to drop closer to 5% by the end of the year.

Yikes! None of those predictions are good.

Fannie Mae is somewhere in the middle. They have recently predicted that the U.S. economy will experience a modest recession this year. But in their December Housing Forecast, they feel that 30-year fixed mortgage rates will only fall by half a point from an average of 6.5% in Q1 to 6.0% in Q4.

“From our perspective, the good news is that demographics remain favorable for housing, so the sector appears well-positioned to help lead the economy out of what we expect will be a brief recession,” said Fannie Mae Chief Economist Doug Duncan. He also stated, "From our perspective, the good news is that demographics remain favorable for housing, so the sector appears well-positioned to help lead the economy out of what we expect will be a brief recession."

We've seen expert opinions fail in the past, and you can see differing thoughts from leaders in the real estate and mortgage industry offering mixed insights. Have you ever heard the phrase date the rate, marry the house? That's a newer saying that came about with the rising rates. There are several ways to lower those rates using ARM's and buydowns. I can provide you with great, local mortgage brokers to give you an idea of what you can do to reduce your monthly mortgage payment. And if rates go down in the future, you can refinance at a better rate.

Sales Will Fall and Inventory Will Go Up

The high interest rates have put a halt to many first-time buyers' dreams. Move-up buyers that got in on low rates, even 5%, will be hesitant to get a new mortgage on a higher-priced property at a higher rate. So although it is predicted that inventory will rise because of higher rates, there will be fewer buyers looking for a home.

Realtor.com Chief Economist Danielle Hale is seeing something in between. “The deceleration in home sales is likely to continue as high home prices and mortgage rates limit the pool of eligible home buyers. We anticipate that existing home sales will decline another 14.1% in 2023.” She is anticipating a 23% increase in inventory in 2023. She also states “It’s important to keep historical context in mind. The level of inventory in 2023 is expected to fall roughly 15% short of the 2019 average.”

Fannie Mae economists predict that home sales will fall by around 20% this year before rising again by nearly 15% in 2024. So the roller coaster ride begins with little relief in 2023.

I'm hoping that National Association of Realtors Chief Economist Lawrence Yun's predictions of a lower dip of 7% in 2023 with a rebound of 10% next year is closer to what will actually happen. We need some good news right now. I hope his prediction of a 7% dip is true and Fannie Mae's thoughts of a 15% increase in 2024 are what happens.

If you were a buyer in prior years that couldn't compete with the many multiple offers most homes received, this is your chance to finally find a place and get your offer accepted. That's if you can afford rates that are 4%+ higher than in the past.

If you're buying and selling a home, you have to consider getting your home on the market as soon as possible so you can attract Spring buyers. If you wait too long you'll be up against more and more other homes as they finally hit the market.

What Will Happen to Home Prices?

Some people (especially home buyers) are expecting prices to fall. I have some buyers waiting for prices to fall, but we're not expecting any kind of pricing crash with Scottsdale homes for sale. Most experts feel prices will remain stable to a slight decrease.

What do the experts say?:

National Association of Realtors Chief Economist Lawrence Yun feels that on average, prices will increase by around 1% in 2023. Some areas will see a higher appreciation while others will see prices reduced. I personally feel that the Phoenix area is still increasing its population, so we might not see price drops in most areas. But the days of double-digit increases is over for now.

Realtor.com Chief Economist Danielle Hale is predicting home prices will rise by 5.4% in 2023. This was my prediction prior to interest rates shooting up as high as they have. As a homeowner who is planning on staying put, I welcome a better increase than 1%, or an actual decrease. But as far as real estate sales go, 5%+ increases coupled with 7%+ interest rates really puts a damper on the volume of sales since so many buyers have been pushed out of the market.

Fannie Mae does not agree with the above predictions. They feel that price drops of 1.5% are going to happen.

I hope Morgan Stanley's prediction of a 7% drop from the peak in June 2022 doesn't come to fruition. It will be interesting to come back to this post at the end of the year to see whose predictions were closer.

Why won't we see the crash that happened in 2008? That crash was caused by loose mortgage lending paired by a large inventory of homes for sale. It was a completely different market and that's why none of the experts are predicting a large price crash, unlike some of my future buyers that are hoping for 20% price reductions.

The bottom line is if you can afford to buy something now, don't wait for prices to go even higher. Even with only a 1% increase, that can mean thousands of dollars more with real estate in Scottsdale and surrounding Phoenix suburbs. Remember, you can refinance if rates go lower in the future, but if you wait and prices increase by what Danielle Hale is predicting, you'll just be paying more down the road.

Will Rent Prices Stabilize?

Since many buyers have been pushed out of purchasing their first home, they are either extending their leases or staying with their parents/family. This means that we are still seeing multiple lessees applying for the same rental property.

Jay Parsons, head of economics for rental housing software company RealPage feels that rents will go up around 3.3% this year while Danielle Hale predicts a 6.3% rise in rental prices in 2023. If you've dreamt about being a homeowner, you should find out how much a house payment would be compared to what you're currently paying in rent (and getting zero benefits from except a roof over your head). You might not be able to start out with the house of your dreams, but Scottsdale condos do appreciate in value, and some as much as single-family homes. You've got to start somewhere and build up.

Call Judy to Find Out What is Best for You

In conclusion, predicting the real estate market in the US in 2023 is difficult. While some experts predict a rise in mortgage rates, others expect a decline. However, one thing is certain, the number of home sales will continue to decline, leading to an increase in inventory levels, giving buyers control vs. the crazy Seller's Market we had in 2020, 2021, and the start of 2022. Unless you love renting and paying someone else's mortgage, give Judy Orr a call at 480-906-1500.