What the Experts Are Saying About Home Prices Next Year, 2023?

October 24, 2022

What the Experts Are Saying About Home Prices Next Year, 2023?

I took a look at what experts are forecasting for home prices in 2023, and I see a lot of fear. I came across several articles that I want to share with you, but I want to start with data from our friends over at Keeping Current Matters.

They emailed some stats regarding the home price forecasts from MBA (+2.8%), HPES (+2.6%), NAR(+1.2%), Fannie Mae(-1.5%), and Zelman (-4.0%) for 2023, with an average of 0.2% increase in home prices for all five forecasts.

These are slightly different from what companies like Moody’s and Goldman Sachs forecasted recently, which is around a 5% to 10% decrease in home prices for next year. 

So, my challenge to all of us is to always dig deep into the data and question what we see in the media.

The market is changing so quickly. Interest rates are rapidly going up, and I want to know what’s next, both here in the US and in some other parts of the world—which is crazy to see as well.

Wells Fargo

According to Keeping Current Matters, “The good news is home prices are expected to return to normal levels of appreciation rather quickly. The latest forecast from Wells Fargo shows that, while they feel prices will fall in 2023, they think prices will recover and net positive in 2024. That forecast calls for 3.1% appreciation in 2024…”

Meanwhile, Wells Fargo also released an article showing graphs of both existing home sales and mortgage purchase applications as well as the homebuying sentiment over the last two decades.

We see a drop in both of those for this year, especially in home buying sentiment, which shows how people are feeling when it comes to real estate in general.

According to Wells Fargo, “Alongside the steep climb [of mortgage rates], existing home sales have declined 19.9% year-over-year as of August. New home sales have also declined, with sales down 14.1% year-to-date through August.”

I also want to highlight what they said that I think was important. 

“The Federal Reserve does not directly control mortgage rates. That noted, mortgage rates tend to closely follow 10-year Treasury yields, which are heavily influenced by expectations for monetary policy and inflation. The fiercely hawkish Fed is one reason why we expect mortgage rates to remain above 6% through Q4-2023. As mentioned previously, we expect unemployment to rise and inflation to abate over the course of next year, which should in all likelihood prompt the Fed to reverse course and ease monetary policy by cutting rates. Even then, mortgage rates are likely to remain above 5% throughout 2024.” (Source: Wells Fargo)

We live in a crazy world. The impact of people’s perceptions on real estate and the stock market is huge. And yes, the Fed does not directly control mortgages; it is more closely tied to the 10-year Treasury yields, but the Fed raising rates still has some indirect influence on them.

Keeping Current Matters

The second part of this is the Home Price Expectation Survey (HPES). 

According to Keeping Current Matters, “…the Home Price Expectation Survey (HPES) from Pulsenomics, a poll of over one hundred industry experts, also calls for ongoing appreciation of roughly 2.6 to 4% from 2024-2026. This goes to show, even if prices decline slightly next year, it’s not expected to be a lasting trend.”

I hate that they span the forecasts over such a long period of time because anything can happen, right? As we’ve seen and experienced in the last 10 to 12 months. At this point, we’re all just kind of guessing based on the day-to-day information that we get.

“As Jason Lewris, Co-Founder and Chief Data Officer for Parcl, says: ‘In the absence of trustworthy, up-to-date information, real estate decisions are increasingly being driven by fear, uncertainty, and doubt.’” (Source: Keeping Current Matters.)

That’s where we’re at right now. That’s also what’s driving a lot of the media and other channels. But sensationalizing things doesn’t help anyone. So, I want you to look at the data before you decide—don’t just make decisions based on fear, uncertainty, and doubt.

The Economist

This next article is by The Economist, titled “Housing markets face a brutal squeeze.” It looks good from a more global standpoint, particularly among 18 countries in the West. So, it gives us a wider glimpse that we don’t normally get for a good portion of the Western world. It is a great article, and I highly recommend you read it.

According to the article, “Australian house prices have dropped for five straight months, placing Quakers Hill at the forefront of a global trend. As central banks race to tame inflation, they are raising interest rates at the fastest pace in at least four decades—which is now translating into housing-market carnage. Prices are falling in nine out of the 18 countries monitored by Oxford Economics, a consultancy, and are dropping fastest in the most overheated markets.”

“In Canada and Sweden they have fallen by more than 12% since their peak last year. Prices have begun sliding in America and Britain, too. Many other countries are heading in the same direction,” they add.

As we dive a little bit deeper, there are three important things I want to highlight from this article.

  1. Hotter markets are more affected by cooling demand

According to The Economist, “Three factors will determine where the pain is most acute, and thus where these consequences are most likely. The first is recent price growth. Housing markets where prices have surged since the pandemic are especially vulnerable to cooling demand.

We’ve seen this trend between migration patterns and inflation, and how those places in the US that had a high influx of people moving in are now some of the hardest hit markets with the market shift. And it isn’t isolated to the US. It is also observed in other countries in the West.

  1. Debt-to-income ratio really weighs in heavily

The article says, “Borrowing levels are the second factor. The higher household debt is as a share of income, the more vulnerable owners are to higher mortgage payments and defaults. Central bankers will find solace in the fact that household debt relative to income is lower than it was on the eve of the global financial crisis in countries including America, Britain and Spain. Yet some countries face a mountain of debt. This makes them sensitive to even small rises in mortgage rates.”

They also have a graph of the 17 countries most at risk, with the top three being Canada, Netherlands, and Australia and New Zealand tying at third rank. The US is in the middle, at rank 7, just slightly above Portugal and Britain, which I personally found weird.

  1. Floating-rate mortgages pose higher risks

The Economist says, “The third factor is the speed with which higher interest rates pass through to homeowners. The biggest risk to borrowers on floating-rate mortgages, which fluctuate with changes in policy rates. They face an immediate reduction in their disposable income. In Canada variable-mortgages account for more than half of all loans. In Australia and Sweden, they account for nearly two-thirds.” 

Now, that’s important. Thank goodness there aren’t a lot in the US but all of those people and other countries that take these rates that fluctuate over time: interest-only, or rates that are locked in for only three to seven years. That’s what we’re seeing in Britain. This is why I’m like, “Hey, shouldn’t Britain be higher than that? Because they have the highest number of interest-only mortgages?”

Then I understood why when I dove deeper into the article. In the end, The Economist says, “Do not be surprised, then, if policy makers launch enormous rescue operations. Already Hungary’s government has offered its citizens protection from rising mortgage interest rates. In its analysis of New Zealand’s housing, the IMF worries that ‘policy support may be needed to avoid second-round effects and a pronounced downturn’. In Spain, banks are reportedly considering limiting payment increases on variable-mortgages. Martin Lewis, a British financial pundit who has more influence than all the country’s newspapers combined, has started to campaign for state support for mortgage-holders. As house prices fall to earth, such demands will only grow.”

Final thoughts…

I want to go back to the home price forecast data for 2023 from Keeping Current Matters. The average is a 0.2% increase, and I believe we can all agree that it’s going to be a flat year next year or slightly negative. That is, if we are being realistic and not sensationalizing things.

Remember, all the time, keep an eye on what’s happening because things change quickly. Look at how fast things are changing now. Always dig into the information a little deeper—don’t just read the title and then assume the worst. Have a good day!