Housing market forecast reverses as house prices and rents are now down

• Realtor.com has reviewed its previous housing forecast and now expects lower prices and rents.
• But the downward revision to the 2023 outlook does not signal a major wave of relief.
• “Home costs are still going to be higher for buyers in 2023 because declines in home prices are very mild and not universal.”

Realtor.com has revisited its previous housing market forecast for this year and pointed it in the opposite direction.

The real estate company now expects average list prices for homes to fall 0.6% from a year ago, compared to its previous forecast of a 5.4% year-on-year increase. the other in 2023.

Similarly, Realtor.com now forecasts a 0.9% drop in rents this year, given a growing supply of rental properties, reversing its earlier forecast of a 6.3% rise.

Admittedly, his initial outlook was largely at odds with what other analysts were saying would happen, and chief economist Danielle Hale seemed to recognize that.

“We made a bold call that house prices would not fall in 2023, and with the latest data, we are revising that projection,” she said in the report.

Initial forecasts for 2023, released in November, were based on the market’s imbalance between demand and supply, and skepticism that homeowners’ asking prices would fall, given the high values ​​at which properties were selling . That’s when 2022 saw a 10.2% jump in house prices.

However, prices have fallen this year, especially in more expensive regions, such as the West, as buyers balked at high prices and mortgage rates, Realtor.com said.

But the downward revision to the 2023 outlook does not signal a major wave of relief.

“Home costs are still going to be higher for buyers in 2023 because home price declines are very mild and not universal,” Hale said. “Some areas are still seeing house prices go up and mortgage rates are still very high.”

Earlier in the year, West Coast cities saw prices plunge by up to 10%, in part because tech layoffs dampened demand. But elsewhere, the Midwest and Northeast saw price increases.

Rental market

More apartments are coming on the market, easing rental shortages, Realtor.com said. For example, completed multi-family construction projects were up 24% year-over-year in April, according to separate data from Redfin recently.

And since landlords are largely reluctant to refinance their mortgages, they are more inclined to rent out their properties, which adds to tenants’ options.

“Asking rents are expected to drop. (But) whether a particular tenant will find lower rents depends on when they last moved,” Hale said. “Tenants who have stayed put and have not faced the higher rents of recent years may find that their rent has some catching up to do.”

Realtor.com also downgraded other forecasts for 2023:

• Instead of housing inventory jumping 22.8% this year, it is now down 5%.
• Home sales are now expected to fall 15.8% to 4.2 million units, the lowest since 2012 and down from an early forecast of a 14.1% drop.
• And mortgage rates are expected to fall to 6.1% by the end of the year, from 7.1% previously.

Although the Federal Reserve has indicated that further monetary tightening is coming, mortgage rates should come back when this cycle is over.

“That means affordability will start to improve, but not drastically,” Hale said.