Mortgage rates will eventually float back down to Earth near the end of 2023 — but not before home prices tally their first year-over-year decline in a decade and sales slump to the slowest pace in 12 years, according to a new housing market forecast from Redfin released Tuesday.
In 2023, stubbornly high mortgage rates will bring about a housing market in which existing-home sales plunge by 16 percent year-over-year, the slowest since 2011 when the “Great Recession” was still top of mind for Americans. But a modest rebound should begin by the second half of the year, according to Redfin.
Overall, the brokerage predicts a market that looks almost unrecognizable from early 2022, when mortgage rates clung to the historic lows of one year prior and demand for homes was still riding high after a frenetic 2021.
Redfin predicts about 4.3 million sales of existing homes in 2023 — 16 percent less than this year.
Persistently high mortgage rates, home prices and inflation will keep prospective buyers from making purchases, and people will only move if they need to, the company said in the statement. As it stands, existing home sales have already declined for nine straight months.
With rates currently near 7 percent, Redfin foresees that they will fall to 5.8 percent by the end of 2023 and will post an average rate of 6.1 percent for the year. Rates dipping from 6.5 to 5.8 percent would save a homebuyer purchasing a $400,000 home about $150 on their monthly mortgage payment, the company pointed out.
The frenzied pandemic market pushed the typical buyers’ agent commission down to 2.63 percent of the home’s sale price, the lowest level since 2012. But reduced competition and reduced sale prices will likely push up buyers’ agent commissions next year, Redfin predicts, and sellers will also play a part in this by offering to pay higher commissions for agents to attract bidders.
While the West and South were the hottest markets of the pandemic years, they’ve since become too expensive for most residents considering relocating. For 2023, Redfin predicts more stable markets in the Midwest, like Chicago, and the Northeast markets, such as Upstate New York and parts of Connecticut to hold up the best and weather any downturns.
After soaring to new highs during the first half of 2022, Redfin predicts that rents will continue their downward trends thanks to increasing inventory, and that big landlords in large cities will begin offering concessions like a month of free rent or free parking before dropping asking rents.
The company also foresees that more people will become move-up renters, who will upgrade to bigger apartments or single-family rentals instead of buying properties due to high property costs.
Redfin foresees a median home value decline of about 4 percent to $368,000 nationally — which would be the first annual price decline since 2011 if it were to happen, mainly due to elevated rates and final sale prices starting to reflect homes that went under contract in late 2022.
However, very few homeowners are likely to find themselves underwater with next year’s predicted price declines. This is due to most homeowners, who have had their homes for a few years, securing their mortgages when rates were low and benefitting from soaring home values during the COVID-19 pandemic.
Builders will shift away from the construction of single-family homes which they ramped up construction of during the pandemic and still need to offload, with Redfin predicting a 25 percent year-over-year decline in building permits and housing starts.
Constructing more multifamily rental buildings will make more financial sense for builders, Redfin predicts, as rental demand won’t fall as much.
Real estate investors will purchase about 25 percent fewer homes than they did this year, as the high-rate environment challenges their buy-low sell or rent-high business model, according to Redfin. iBuyers pulling out of the market as their business model faces existential questions will also slow activity.