Redfin expects home sales to sink to their lowest level in more than a decade in 2023 as high mortgage rates keep housing costs up and prevent people from moving. High homeowner equity and a resilient job market will stave off a wave of foreclosures. Mortgage rates will take center stage in 2023, with high rates likely to make it the slowest housing-market year since 2011.
Redfin’s forecasts for mortgage rates, home sales and home-sale prices account for a range of outcomes for inflation, employment and other macroeconomic factors. As such, its predictions for those key housing metrics lead with the most likely scenario.
Home sales will fall to their lowest level since 2011, with a slow recovery in the second half of the year. Redfin expects about 16% fewer existing home sales in 2023 than 2022, landing at 4.3 million, with would-be buyers pressing pause due mostly 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.
That’s fewer home sales than any year since 2011, when the U.S. was reeling from the subprime mortgage crisis, and a 30% decline from 2021 during the pandemic homebuying boom. It would also lead to the lowest housing-turnover rate since the early 1980s, with just 32 out of every 1,000 households selling their home in 2023.
Existing home sales will likely fall 31% year over year in the first quarter, followed by smaller annual declines in the second and third quarters. By the fourth quarter, existing home sales will be flat from the year before. Sales will slowly start recovering as rates fall from their peak, but they’ll still post year-over-year declines most of the year. Redfin predicts about 20% fewer sales of newly built homes, landing at about 500,000 nationwide.
When buyers don’t want to buy, sellers don’t want to sell. Low demand, plus the “lock-in” effect of homeowners with ultra-low mortgage rates staying put, mean new listings will continue to decline year over year during the first half of 2023.
Another possible existing sales scenario is that they’ll decline by only about 12% in 2023 from 2022, landing at just over 4.5 million. That could happen if inflation consistently slows faster than expected, allowing the Fed to slow its pace of rate hikes and leading to quick mortgage-rate drops. But if inflation persists, sales could drop by up to 27% year over year.
Redfin predicts mortgage rates will decline, ending the year below 6%. It expects 30-year fixed mortgage rates to gradually decline to around 5.8% by the end of the year, with the average 2023 homebuyer’s rate sitting at about 6.1%.
In addition, home prices will post their first year-over-year decline in a decade, but the U.S. will avoid a wave of foreclosures. Redfin expects the median U.S. home-sale price to drop by roughly 4% – the first annual drop since 2012 – to $368,000 in 2023. That’s due to elevated rates and final sale prices starting to reflect homes that went under contract in late 2022. Prices would fall more if not for a lack of homes for sale: Redfin expects new listings to continue declining through most of next year, keeping total inventory near historic lows and preventing prices from plummeting.
Housing markets in relatively affordable Midwest and East Coast metros, especially in the Chicago area and parts of Connecticut and upstate New York, will hold up relatively well, even as the U.S. market cools. Those areas tend to be more stable than expensive coastal areas and they didn’t heat up as much during the pandemic homebuying frenzy. On the other end of the spectrum, Redfin expects prices to fall most in pandemic migration hotspots like Austin, Boise and Phoenix.
Redfin also predicts rents will fall, and many Gen Zers and young millennials will continue renting indefinitely. Gen Zers will seek jobs and apartments in relatively affordable mid-tier cities. Migration from one part of the country to another will also ease from the pandemic boom.
Redfin sees builders focusing on multifamily rentals and investor activity bottoming out in the spring, then rebounding.
Another prediction Redfin projects is rising disaster insurance costs making extremely climate-risky homes even more expensive. Redfin also expects more cities will follow Minneapolis’ YIMBY example to curb housing expenses. The last prediction expects buyers’ agent commissions will rise slightly as fewer agents broker fewer deals at lower prices.
“The decline in agent commissions is likely to resume once the market heats up again,” states Joe Rath, Redfin’s director of industry relations. “That’s because the real estate industry is finding new ways to educate consumers on how agents are paid, including a requirement that commissions are publicly displayed. Additionally, the industry is under scrutiny as the Department of Justice looks into how agents are paid and considers whether the commission structure causes limited competition. That probe could result in buyers becoming responsible for paying their own agents, which would likely lead to a drop in commissions.”
Read the full Annual Housing Outlook report here.
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