The US housing market’s deep freeze is likely to accelerate next year and result in the first year-over-year decrease in home prices in a decade, according to experts at real estate firm Redfin.
The median US home sale price is projected to fall 4% to $368,000 in 2023, according to Redfin’s forecast for the upcoming year. The decline will make the first annual drop in home prices since 2012.
The prices declines will begin during the first quarter as owners closed deals on homes that went into contract at the end of this year, deputy chief economist Taylor Marr said in a blog post. Home prices have already begun to fall on a month-over-month basis in many markets.
“Prices would fall more if not for a lack of homes for sale,” Marr said. “We expect new listings to continue declining through most of next year, keeping total inventory near historic lows and preventing prices from plummeting.”
Home prices are expected to fall most precipitously in so-called “pandemic boomtowns” that attracted buyers in 2020 and 2021. Cities most at risk include Austin, Texas; Boise, Idaho; and Phoenix, Arizona.
Meanwhile, home markets in the Midwest and Northeast are seen as likely to maintain their prices in the year ahead.
Surging mortgage rates this year have caused an affordability crisis, adding to the financial pain for prospective buyers that already faced steep home prices and crushing inflation.
The worsening conditions began to crush buyer demand in the second half of this year and led desperate sellers to slash their asking prices – or pull their listings entirely.
A decline in sales volume is expected to continue into next year. The number of existing home sales is expected to plunge 16% to 4.3 million in 2023 compared to this year.
Marr said the sales slump is attributable “to affordability challenges including high mortgage rates, still-high home prices, persistent inflation and a potential recession.”
“People will only move if they need to,” Marr added.
As the year progresses, homeowners could see some relief in the form of cooling mortgage rates. Redfin predicted 30-year fixed mortgage rates will sink to an average of 5.8% by the end of next year – after they surged above 7% this year.
“Mortgage rates dipping from around 6.5% to 5.8% would save a homebuyer purchasing a $400,000 home about $150 on their monthly mortgage payment,” Marr said.
Federal Reserve Chair Jerome Powell has referred to current conditions in the housing market as a “bubble” – and the situation has prompted mounting anxiety among Americans.
A recent survey from LendingTree found that 41% of Americans expected a housing market crash within the next 12 months.
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