What To Expect from the Housing Market in 2023?

Two key factors will define the 2022 housing market: inflation and rapidly rising mortgage rates. And, in many ways, it has reset the market.

As the Federal Reserve (the Fed) made moves this year to try to lower inflation, mortgage rates more than doubled – something that’s never happened before in a calendar year. This had a cascading impact on buyer activity, the balance between supply and demand, and ultimately home prices. And as all those things changed, some buyers and sellers put their plans on hold and decided to wait until the market felt a bit more predictable.

But what does this mean for the coming year? What everyone really wants in 2023 is more market stability. That will require the Fed to reduce inflation even further and keep it there. Here's what housing market experts predict for next year.

What’s Ahead for Mortgage Rates in 2023?

Moving forward, experts agree that it will all come down to inflation. Mortgage rates will rise if inflation remains high. However, if inflation continues to fall, mortgage rates will most likely rise. While there are early signs that inflation is easing as the year comes to a close, we're not out of the woods yet. Inflation is still a concern in 2023.

Right now, experts are factoring all of this into their mortgage rate forecasts for next year. And if we average those forecasts together, experts say we can expect rates to stabilize a bit more in 2023. Whether that’s between 5.5% and 6.5%, it’s hard for experts to say exactly where they’ll land. But based on the average of their projections, a more predictable rate is likely ahead (see chart below):

What To Expect from the Housing Market in 2023 | Keeping Current Matters

That means, we’ll start the year out about where we are right now. But we could see rates tick down if inflation continues to drop. As Greg McBride, Chief Financial Analyst at Bankrate, explains:
“. . . mortgage rates could pull back meaningfully next year if inflation pressures ease.”

What Will Happen to Home Prices in the Coming Year?

Supply and demand will always determine home prices. The more buyers there are and the fewer homes on the market, the higher home prices will rise. That's exactly what happened during the pandemic.

But things have changed this year. As a result of higher mortgage rates, we've seen home prices moderate and housing supply grow. The degree of moderation has varied by region, with the greatest shifts occurring in overheated markets. But, do experts believe this trend will continue?

The graph below shows the latest home price forecasts for 2023. As the different colored bars indicate, some experts are saying home prices will appreciate next year, and others are saying home prices will come down. But again, if we take the average of all the forecasts (shown in green), we can get a feel for what 2023 may hold.

What To Expect from the Housing Market in 2023 | Keeping Current Matters

The truth is probably somewhere in the middle. That means nationally, we’ll likely see relatively flat or neutral appreciation in 2023. As Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), says:

“After a big boom over the past two years, there will essentially be no change nationally . . . Half of the country may experience small price gains, while the other half may see slight price declines.”

In conclusion
Mortgage rates will define the 2023 housing market, and rates will be determined by what happens with inflation. A trusted real estate advisor is the best way to stay on top of what experts predict for next year.

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