Home sales may plummet in 2023. These cities may experience the biggest falls.
Home sellers should prepare for a tough year ahead, with a property group predicting property sales could fall in 2023 as more buyers are sidelined by rising mortgage rates and out-of-reach house prices.
Home sales are likely to fall 14.1% to 4.53 million homes, representing the lowest number of real estate transactions since 2012, when the U.S. was still recovering from the housing crash and Great Recession, according to Realtor.com’s 2023 Housing Forecast.
The pandemic triggered a massive boom in property sales, fueled by a combination of record low mortgage rates and work from home by many employers. Since early 2020, home prices have risen nearly 40%, while mortgage rates have more than doubled since the start of the year, a double whammy that has priced many buyers out of the market.
Sellers may feel the brunt of this effect next year, according to the new Realtor.com forecast.
“High house prices and mortgage interest rates [will] limit the selection of qualified home buyers”[ads1]; in 2023, it said.
Home sales are expected to fall the most in California and Florida. The biggest drop in sales volume will be in these cities, Realtor.com predicted:
- Ventura, California: Down -29.1%
- San Jose, California: -28.8%
- Bradenton, Florida: -28.7%
- San Diego, California: -27.3%
- Palm Bay, Florida: -18.3%
- Los Angeles, California: -15.8%
- Tampa, Florida: -15.6%
- Tucson, Arizona: -14.7%
- Fresno, California: -13.7%
- San Francisco: -13.3%
Possible bright side for sellers
If there’s a bright side for sellers, it’s that the average sales price in the nation’s top 100 markets is likely to increase next year by an average of 5.4%, according to Realtor.com’s 2023 Housing Forecast.
Not everyone’s view of house prices in 2023 is as sunny. Some economists are predict that property values could fall by as much as 20% next year due to the rise in mortgage rates and economic uncertainty.
Although Realtor.com predicts higher home prices next year, the rate of escalation represents a slower rate than the meteoric increases of the past two years. Prices will be elevated during the first half of 2023, but will likely fall or remain flat during the second half of next year, Realtor.com chief economist Danielle Hale told CBS MoneyWatch.
“We expect, for the year as a whole, 2023 is going to be higher,” Hale said. “Shoppers looking to buy may have to wait a bit.”
The high prices will be more dramatic in some cities than others, Realtor.com predicted. Metro areas that could see the sharpest increases are:
- Worcester, Massachusetts: 10.6%
- Portland, Maine: 10.3%
- Grand Rapids, Michigan: 10%
- Providence, Rhode Island: 9.8%
- Spokane, Washington: 9.6%
- Springfield, Massachusetts: 8.9%
- Boise, Idaho: 8.7%
- Chattanooga, Tennessee: 8.2%
- Indianapolis, Indiana: 7.8%
- Milwaukee, Wisconsin: 7.7%
These higher prices could be discouraging for buyers who have already faced sharply higher property assessments in 2022. Some cities in particular — like Boise, Idaho; and Austin, Texas — saw double-digit percentage increases this year.
The rising cost of home ownership deterred many aspiring buyers, who have instead chosen to continue renting. In a recent LendingTree survey, nearly half of respondents said they are putting off big decisions, whether renting for a longer period of time or putting off major home renovations.
House prices have fallen in some areas at the end of 2022, but mortgage interest rates have continued to rise. The average interest rate for a 30-year fixed mortgage was approx. 6.6% this week, more than double the interest rate at the start of the year.
Realtor.com expects mortgage rates to rise further early next year as the Federal Reserve continues to raise its benchmark interest rate. Mortgage rates could reach as high as 7.4% in the first half of 2023 before settling to around 7.1% towards the second half of the year, the company said.
The combination of higher home prices and mortgage interest rates in 2023 could push the typical monthly mortgage payment in 2023 to $2,430, or 28% higher than this year, Realtor.com predicted.
Mortgage rates rose so quickly this year that at times it was difficult for buyers to figure out how much home they could afford, Hale said. In 2023, interest rates probably won’t fluctuate as much, she said.
“Having more stability will make it easier for buyers when setting the right budget,” she said. “And that should help encourage people to get back into the housing market.”
With buyers sitting on the sidelines, the number of homes available for sale is expected to rise by almost 23% next year. The upside for buyers is a greater range of choices, while sellers will face more competition.
To be sure, all of those predictions could change depending on how the Fed handles the fight against inflation next month and early next year, Hale said. Fed has raised the benchmark interest rate six times this year, and with each increase mortgage interest rates have also risen. Hale and other economists expect the Fed to raise interest rates again next month, but perhaps not as much as previous increases.
