Last week, the Fed announced that it would lift its pause on interest rate hikes, raising rates by 25 basis points (0.25%). The current rate is the highest it’s been since March 2001. This move is a further attempt at directing the economy toward a “soft landing,” or a gradual slowdown that curbs inflation while avoiding a full-blown recession.
Because homebuyer activity is tied to mortgage rates, this development could have a significant impact on the housing market in the United States. Buyers are still struggling with affordability, which drives demand down. That means home prices should come down too, right? Not quite—and the reason is low inventory.
Sellers currently locked into a low interest rate don’t want to sell their homes only to face a higher rate on their new mortgage and high prices in their housing market. So although demand is lukewarm, it’s still greater than the supply of available houses.
How will this affect home prices in the second half of 2023? Let’s check out updated predictions from the experts.
Mid-year home price predictions from the experts for 2023
Citing the tug-of-war between demand and inventory, U.S. Bank believes that home values in the U.S. are stabilizing. After the skyrocketing values of 2020-2021 and a period of modest decline, “the U.S. housing market appears to be adjusting to higher mortgage rates” (“The impact of today’s higher interest rates on the housing market,” 26 July 2023). The bank holding company is optimistic about the uptick in new construction activity, but does not believe it will alleviate the housing shortage enough to significantly reduce home prices. Until affordability and inventory constraints loosen, the current market will hold.
Bankrate’s chief financial analyst Greg McBride predicts that the “housing market will be tepid in 2023, with only lukewarm demand and a limited amount of inventory available for sale” (Martin, 10 July 2023). In early July, McBride wrote that “mortgage rates could pull back meaningfully if inflation pressures ease” which would facilitate greater movement in the market. However, the Fed announced yet another rate hike just 16 days later, so the market will probably align more with Rick Sharga’s prediction that “borrowers will pursue fewer purchase loans and we will see a continuing decline in rate-based refinance activity.” That means because of the unaffordability, buyers will hold off on purchases.
On July 19th, Fannie Mae’s Economic and Strategic Research (ESR) Group published an updated prediction for the 2023 economy and housing market using data from the first half of the year. While they note that a “soft landing” has become more probable than they initially thought, they still predict a mild recession by the end of 2023 into the beginning of 2024. Home sales are down due to low inventory and high mortgage rates, and although new construction activity is growing, the housing shortage “shows no signs of easing” (“Inflation is Slowing, But Fully Quelling It Will Be Tough,” 19 July 2023). For that reason, 2023 home prices have been stronger than the ESR Group previously predicted—but with the forecast of a recession on the horizon, it's their expectation that home price growth will slow.
Citing the same reasons, Forbes Advisor also predicts a lukewarm housing market for the rest of 2023. Rising mortgage rates keep affordability out of reach for many while encouraging homeowners to stay put rather than sell their homes. In addition, “Though the median existing-home sales price edged lower year-over-year for the fourth consecutive month—a promising sign for home shoppers—experts don’t expect substantial, nationwide price declines anytime soon” (Rothstein, Jennings, 20 July 2023). Instead, Forbes experts still predict a correction from the double-digit gains of the last several years over a full-scale market collapse or massive price deflation.
CoreLogic predicts that home prices for the rest of 2023 will vary regionally, but will remain elevated overall. CoreLogic’s chief economist Selma Hepp stated that “2023 homebuying activity may end up being the slowest in about a decade” (Hepp, 25 July 2023) due to high mortgage rates and low inventory. She explains that while home prices performed better than expected in early 2023, “monthly gains are likely to plateau to historical averages as mortgage rates continue to impact affordability in many markets."
The bottom line
While economy and housing market experts don’t unanimously agree about whether the U.S. will enter a soft landing or a recession, most concur that home prices are relatively stable due to high mortgage rates and low inventory. Some are predicting a growth slowdown, while others forecast a plateau in prices or a mild decline. What does that mean for you?
If you’re trying to buy, make sure you shop around for a mortgage to get the best rate.
If you’re thinking of selling, get in touch with an expert real estate agent in your area. You want someone by your side who knows how to skillfully navigate and sell your home for top dollar under any market conditions.
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