Don’t expect house prices to fall in 2023, says NAR economist

While high mortgage rates, lazy home sales and high inflation have weighed heavily on the housing industry, these issues are unlikely to lead to lower home prices next year, at least according to National Association of Realtors (NAR) Chief Economist Lawrence Yun.

In fact, we can see a new rise house prices in 2023, even if mortgage rates stay at or near 7%, Yun said.

Yun, who analyzed the current state of the residential market, presented his market outlook for 2023 at the NAR conference in Orlando on Friday.

“In most parts of the country, house prices are holding up as available inventory is extremely low,” Yun said. “Some places are seeing price increases, while others, especially in California, are seeing prices go down.”

While the unprecedented rise in mortgage rates led to a lack of demand from buyers, it has also had a chilling effect on homeowners, who are reluctant to put their homes up for sale in a tough market. In turn, buy inventory levels remained weak in most markets.

Housing market conditions are also fundamentally different from what they were during the Great Recession, according to Yun. As such, there is unlikely to be a significant increase in the inventory of distressed properties on the market – or a subsequent drop in house prices – in the near future.

“The housing inventory is about a quarter of what it was in 2008,” Yun said. “Sales of distressed properties are almost non-existent, at just 2%, and far from the 30% seen during the property crash. Short selling is almost impossible due to the significant price appreciation of the last couple of years.

Moreover, there are signs that mortgage rates have reached 7%, Yun noted. One such example is the October consumer price index, which showed that inflation is rising less than expected.

But while Yun expects to see a 1% increase in the national median house price next year, he noted that some markets will see price increases, while others will see price decreases.

Yun also expects home sales to fall by 7% in 2023. However, he expects 2024 to see a strong rebound in home sales, with an expected 10% increase in home sales. houses and a 5% increase in the national median house price.

While the outlook for 2023 was generally positive, Yun expressed concern about the spread between mortgage rates and the federal funds rate.

“The spread between the 30-year fixed mortgage rate and the government borrowing rate is much higher today than it has been historically,” Yun said. “If we didn’t have this big spread, mortgage rates wouldn’t be 7%, they would be 5.8%. A normal deviation would revive the economy. If inflation went away, then we would see less anxiety in financial markets and lower interest rates, allowing homeowners to refinance.

He also noted that this year’s housing market downturn has had an outsized impact on the country’s overall economic performance.

“The decline in home sales and construction has [brought] drop in GDP,” Yun said. “If the housing market stabilized and did not decline, GDP would be positive.”

Some other forecasts predict lower home sales in 2023, including Goldman Sachsincluding economists expect house prices will drop 5-10% next year.

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