Top National Real Estate Trends to Watch in 2023

The real estate market has had quite an up-and-down ride over the past few years, with supply plummeting, demand skyrocketing, and home prices and annual percentage rates (APRs) adjusting accordingly.

Projections for real estate trends in the country for 2023 certainly aren’t black and white, but there are some clues as to what we might expect for the year.

Industry experts have offered projections, trends, and forecasts about where sales activity, the national housing supply, buyer competition, mortgage rates, mortgage loans, and home prices might be headed in 2023.

The Real Estate Market in 2023

According to the National Association of Realtors, sales of previously owned homes fell for the 10th straight month in November 2022 to 4.09 million units (seasonally adjusted), a 7.7% drop from October.

This number decreased 35.4% from the previous year, which means that existing homes are selling at the slowest pace since a decade ago when the Great Recession upended the market. New construction isn’t faring better and is starting 2023 with home builders pulling back permits and starts for 2023.

Will Home Sales Decline?

Most industry experts see home sales slowing down during 2023, regardless of whether mortgage rates increase or not.

The housing shortage experienced during 2020-2021 saw the average number of days a property spent on the market shrivel. However, the length of time on the market started creeping up in mid-2022 in most areas. In May 2022, homes stayed on the market for an average of just 31 days. As of late 2022, that average had risen to 56 days on the market (not seasonally adjusted).

Many buyers were priced out of the market in 2022. For the first time since November 2020, national home price growth decreased to the single digits. Some analysts expect home price growth to continue the decline through 2023, slowing to just 2.8% by November.

Will Mortgage Rates Go Back Down?

Some of that increase in the average time houses spend on the market will be because homebuyers are waiting for mortgage rates to drop to much lower levels. But will rates drop?

In 2022, rates almost doubled along with interest rates, but many hope 2023 will see the cost of financing a home come down. The average 30-year fixed mortgage rate as of January 5, 2023, is 6.48%, which is quite a bit higher than it was during the COVID-19 pandemic, when it bottomed out at 2.67% on December 31, 2020.

Mortgage rates are the highest since 2002, but some analysts remain optimistic about stabilizing in the first half of 2023. Freddie Mac’s chief economist, Sam Khater, thinks inflationary pressure is easing and will lead to lower mortgage rates.

Others, like Dennis Shirshikov, a professor of economics and strategist at Awning.com, cite that higher interest rates, continued inflation, and a looming recession could make mortgage rates rise through 2023 to about 8.5%.

The annual inflation rate for the U.S. stands at 7.1%, making everyone nervous, from prospective sellers to prospective buyers. What mortgage rates will actually do remains to be seen, and much of it depends on the Federal Reserve’s ability to get inflation under control and ease up on its rate increases.

Will More Houses Be Listed on the Market?

So far, many industry experts don’t agree on projections for housing inventory for 2023. The nation has about a three-month supply, which is roughly 50% of what’s needed, according to Rick Sharga, VP of Market Intelligence for ATTOM Data Solutions.

Since most homeowners this year won’t likely trade their homes for a new one with a higher interest rate unless they absolutely have to, existing home inventory looks to remain low through the year.

The alternative point of view is that the housing inventory will increase due to homes becoming more out of reach for many people because of high rates.

Will Home Prices Increase or Decrease?

If housing inventory stays low, most experts agree home prices will likely not decrease in 2023. A large set of industry analysts expect prices to remain fairly flat, increasing marginally by not much more than 1%.

Others feel that higher interest rates will hurt pricing, which would be excellent news for buyers but not so much for sellers. Sharga expects a 5 to 10% decline nationally, although the more high-priced markets may see larger decreases.

Shirshikov states that any home price decrease will not be enough to substantially neutralize the impact of higher interest rates on monthly mortgage payments.

Some of the factors that could prevent prices from falling more than that include:

• Strong credit quality among mortgage holders
• High demand for homeownership from young adults
• Limited housing inventory

Many potential homebuyers are waiting to enter the market, but if home prices do fall, these buyers will make a move. This is especially true for those less impacted by interest rates, such as all-cash buyers.

Will There Be a Seller’s Market or Buyer’s Market in 2023?

Sellers had the upper hand in the housing market in 2021 and 2022. Several analysts expect that homebuyer demand will be stifled this year because of economic concerns and affordability issues. However, if inventory remains limited, that may work to the sellers’ advantage and drive home values up.

Other analysts say it’ll be a mixed bag and that the market will vary nationwide. Much of the variation will depend on the type of market. During the pandemic, there was a boom in bidding wars for smaller markets and suburban listings. This was because of the demand for more space to accommodate working remotely.

Many industry experts expect that now that many businesses are back to in-person office routines, the larger markets will return to pre-pandemic activity levels with increased demand.

National Real Estate Trends for 2023

The overall consensus about the real estate market for 2023 is that nothing will change dramatically, especially home affordability or interest rates. It’s likely to be a fairly tepid year for the housing market, and the hope is that interest rates will come back down as supply and demand balance out.

Demand is expected to be “so-so,” and inventory may be limited, but much of what 2023 has in store depends on the path inflation will take. If inflation pressures loosen their grip, mortgage rates could go down more than expected.

However, if those rates don’t go down enough, borrowers won’t rush to lenders for loans, and there may be a continued decline in sales and refinancing as a result. Many analysts expect current homeowners to stay put unless they absolutely must sell.

There are still a few would-be borrowers who are waiting for rates to drop significantly, but unfortunately for them, the financing windows with the rock-bottom rates of 2020 and 2021 are likely long gone.