The housing market’s forecast is turning as house prices and rents are now falling

• Realtor.com has re-examined its previous housing predictions, and now expects a drop in prices and rents.
• But downgrading the outlook for 2023 does not signal a big wave of relief.
• “Housing costs are still going to be higher for buyers in 2023 because the house price declines are very mild and not universal.”[ads1];

Realtor.com has re-examined its previous housing market predictions for this year and pointed them in the opposite direction.

The real estate company now expects average home listing prices to fall 0.6% from last year, compared to previous predictions of a 5.4% year-over-year increase in 2023.

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

To be sure, its original outlook largely ran counter to what other analysts said would happen, and chief economist Danielle Hale appeared to acknowledge that.

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

The first 2023 forecast, which came out in November, was based on the market’s imbalance between demand and supply, and skepticism that homeowners would lower their asking prices, given the high values ​​the properties were selling for. It’s like 2022 saw a jump in house prices of 10.2%.

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

But downgrading the outlook for 2023 does not signal a big wave of relief.

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

Earlier this year, West Coast cities saw prices plunge as much as 10%, in part because technical layoffs reduced demand. But elsewhere, the Midwest and Northeast saw price gains.

Rental market

More apartments are coming on the market, easing a rental shortage, Realtor.com said. For example, completed multifamily projects rose 24% year-over-year in April, according to separate data from Redfin recently.

And since homeowners are largely unwilling to refinance their mortgages, they are more inclined to rent out their properties, creating an opportunity for renters.

“Rents are expected to fall. [But] whether any particular tenant is going to find rents are lower depends on when they last moved,” Hale said. “Tenants who stayed put and didn’t struggle with the higher rents of recent years may find their rents catch up. to do.”

Realtor.com also downgraded other 2023 predictions:

• Instead of housing stock jumping 22.8% this year, it is now seeing a 5% drop.
• Home sales are now expected to fall 15.8% to 4.2 million units, the lowest since 2012 and down from an early prediction of a 14.1% decline.
• And mortgage interest rates fall to 6.1% at the end of the year, against a previous reading of 7.1%.

While the Federal Reserve has indicated that more monetary tightening is coming, mortgage rates should retreat once that cycle is done.

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