Will mortgage rates continue to escalate? Is the slow but steady drop in home prices expected to persist? Is a housing market crash likely? We reached out to several experts to get their housing market predictions for late 2022 and early 2023.
Recent housing market updates: Home prices and market trends
Overall, the housing market is in a clear downturn. Home prices peaked nationally in June 2022, when the S&P Case-Shiller U.S. National Home Price Index reached over 318 points and the National Association of Realtors’ median existing-home price for all housing types reached a new high of $416,000. The index dropped to around 303 points as of August (the most recent listing), and median existing-home sale prices have since dropped to $379,100.
A major reason is the steady climb in mortgage interest rates, fueled in part by the Federal Reserve’s decision to raise rates multiple times across 2022. At its November meeting, the Fed increased interest rates for the sixth straight time. It has been aggressively spiking rates in an effort to curb inflation, and the real estate market has suffered accordingly. Rising mortgage rates equate to less interest from home buyers and greater pressure on sellers to reduce their prices.
“The last few months of 2022 already reflect sales slowing, fewer people applying for mortgages and a larger percentage of people falling out of contract — meaning backing out of an executed contract to buy a property,” says Suzanne Hollander, a real estate attorney and professor at Florida International University in Miami. Per Redfin data, 60,000 deals were called off nationally in September 2022, representing 17 percent of the homes that went under contract that month.
L.D. Salmanson, CEO of real estate data firm Cherre in New York City, notes that we are seeing fewer transactions and increasing days on the market, indicating a price gap between buyers and sellers. “As interest rates rise, buyers are deterred from the housing market and mortgage applications are extremely low,” he says. “History tells us that this is temporary: People are losing their jobs while still carrying mortgages at variable rates. This will force them to return to reality and sell at lower prices.”
Predictions for the housing market and inventory this winter
Despite the current market’s low inventory levels, there are still houses out there for those looking to buy — if you’re willing to navigate the wild rate and price fluctuations. Here’s how some industry pros are predicting the winter season to play out.
Hollander anticipates the pace of home sales to slow for an extended period. “The days a typical home is listed on the market may increase — as fewer buyers qualify for a mortgage, it may take more time to find a buyer who qualifies,” she says. “Also, sellers contemplating listing their homes may have second thoughts and decide to stay put. If they sell and purchase a new property, they will face high interest rates, and if they sell and move into a rental property, they will face rents that are escalating across the nation.”
Steve Adamo, president of national retail production for Embrace Home Loans, expects this winter’s housing market to have increased supply and more moderate prices than last year’s. “The winter season will show a flattening of home prices,” he says. “Mortgage interest rates will likely stay in the range they are today, at 6.5 to 7 percent. And housing inventory will continue to grow as affordability becomes more challenged and we enter a higher supply and lower demand environment.”
Clifford Rossi, a professor at the University of Maryland and former managing director of Citigroup’s Consumer Lending Group, agrees that housing prices will continue to decelerate. “We are in for a bumpy ride in housing over the next 12 months, but we shouldn’t expect it to look anything like 2008 to 2009,” he says. “This looks to be more of a reversion to the mean from a period of lofty house price appreciation. We could see a 3 to 8 percent decline in home prices over the next 12 months.”
Real estate attorney Heather James, partner and co-founder of Cook & James in the Atlanta area, expects an overall shift toward a full buyer’s market. “We are beginning to see the pendulum move away from sellers,” she says. “Interest rates are going to continue to go up, but buyers are going to have more power to flex with regard to pricing. I predict that sales will continue to slow and prices will continue to go down as sellers see their home sit on the market for longer than they have for several years.”
December 2022 predictions
Dennis Shirshikov, head of content for real estate investment website Awning, offers specific prognostications from December through February.
”In December, I expect we will continue to see increased inventory and price decreases of 5 percent nationally,” he says. One factor contributing to this possible trend will be the holiday season, a time when fewer buyers are shopping for properties and many sellers put their listings and showings on hold.
January 2023 predictions
It makes sense, considering the holiday slowdown, that things would be slow to ramp back up again. Shirshikov believes larger price markdowns of 10 percent or more are likely in the first month of the new year, “with fewer new properties hitting the market.”
February 2023 predictions
A month later, Shirshikov anticipates more new properties being added to the national housing supply. “This will force stale inventory to be marked down to attract spring buyers,” he says.
Will there be a housing market crash?
The experts agree: Don’t expect a housing bubble or market crash anytime soon, including over this coming winter.
For one thing, conditions now are not like what happened in 2008, when the housing market tanked, says James. “A lot of regulations were put into place following the Great Recession, which led to better loans being written. This is completely different from what we saw in the subprime mortgage era,” she says.
“A housing bubble or crash would need a negative consumer credit profile from a mortgage borrower that has not existed for many years,” Adamo notes.
Shirshikov concurs: “There will not be a housing market crash or bubble in 2022 or 2023. The borrowers eligible for mortgages today are well-qualified and have strong incoming credit. All the other underlying fundamentals, like demand for housing and the cost of new construction, will also support home prices.”
However, that doesn’t mean there won’t be a recession to worry about, says Salmanson. “As the Federal Reserve continues its fight to bring down inflation without causing higher unemployment rates, I’m seeing an increasing number of economists predicting a recession,” he points out. “Because previous recessions started with downturns in the housing market, it does look like we could experience a recession in 2023.”
Will there be foreclosures this winter?
At the height of the COVID pandemic, the federal government, most states, some localities and many mortgage lenders put foreclosure moratoriums into effect. But most of these moratoriums have since expired, and now, it appears that foreclosures are on the rise. According to ATTOM Data Solutions, foreclosure filings were up this October by 57 percent from the year prior, with completed foreclosures up 18 percent.
Still, Shirshikov doesn’t expect foreclosures to rise precipitously this winter as a result of the current rate environment. “Most mortgage loans made in the last 10 years have very sound underlying financials and are not high risk,” he says.
Warning signs of a market crash
Experts concur that we are not in a housing bubble currently, nor is a housing crash on the horizon. Still, it’s good to know the red flags that signal a potential market crash, including:
- Increasing loan-to-income levels
- Overpriced properties that outpace affordability, inflation and economic fundamentals
- Higher mortgage rates
- Lower economic growth
- Escalating mortgage balances
- Climbing subprime mortgage loan numbers
Borrowers are still more likely to pay off their mortgage
Fortunately, since the housing market crash of 2008, consumers are more aware of the risks involved with mortgages and homeownership. Buyers today are less likely to purchase a home they are unable to afford. The job market also remains strong, suggesting that most buyers and existing homeowners should be able to make their mortgage payments.
“I expect that most borrowers will still be able to afford mortgage payments this winter, and most renters will continue to afford rent payments as well,” Shirshikov says.
Who bought houses in 2021?
It’s helpful to take a closer look at who purchased properties last year, which may provide clues as to which generations may buy a home this fall and beyond. Here’s what we know, based on National Association of Realtors data:
|Gen Z: 21 years and younger||2||21|
|Younger Gen Y/Millennials: 22 to 30 years||14||27|
|Older Gen Y/Millennials: 31 to 40 years||23||35|
|Gen X: 41 to 55 years||24||48|
|Younger Boomers: 56 to 65 years||18||61|
|Older Boomers: 66 to 74 years||14||69|
|Silent Generation: 75 to 95 years||5||78|
Should I buy a house now or wait?
Whether you should buy a home now or postpone the purchase will depend on many factors, including the relative affordability of both the home itself and the mortgage loan. Some experts recommend waiting it out until things become more affordable. But there’s always the risk that, even if home prices decrease, mortgage rates will continue to rise in the coming months. If you are seeking to purchase but have a home to sell first, it may be in your best interest to delay your decision until rates come down.
What happens to the housing market during a recession?
Typically, the Federal Reserve will lower interest rates during a recession, which often results in lower mortgage rates and motivates people to spend money and stimulate the economy. However, with inflation still much higher than desired, the trend all year has been to raise rates. Overall, a recession usually triggers or is triggered by a downturn in the housing market. You can likely expect lower prices on homes during a recession, but not necessarily decreased mortgage rates if a recession were to occur this winter.
What are some tips for buying or selling in a hot housing market?
While we are not expected to return to a robust national housing market this winter, it’s good to know how to proceed when the market gets hot again. A hot housing market usually means higher prices, more competition from buyers, possible bidding wars and greater leverage for sellers.
- In a hot market, buyers should act quickly and make a strong offer on a desired home to avoid a bidding war.
- Buyers might also consider making a larger down payment to strengthen their offer or purchasing with cash if possible.
- Sellers, meanwhile, should aim to field multiple offers for their homes to maximize the sale price.
- In addition, sellers should work with their agent and attorney on tailoring the purchase contract to be as favorable as possible.