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Redfin: 2023 Housing Market To Be Slowest In 12 Years

Sarah Wolak
Dec 06, 2022
Mortgage Forecast

Predicts mortgage rates and affordability challenges will deter would-be homebuyers.

KEY TAKEAWAYS
  • Redfin expects 30-year fixed mortgage rates to gradually decline to around 5.8% by the end of 2022, with the average 2023 homebuyer’s rate sitting at about 6.1%.
  • The brokerage expects about 16% fewer existing home sales in the new year compared to this year, landing at 4.3 million

Mortgage rates will take center stage in 2023, with high rates likely to make it the slowest housing-market year since 2011, according to annual end-of-year predictions from Redfin.

Redfin’s forecasts for mortgage rates, home sales, and home-sale prices are based on a range of potential outcomes for inflation, employment and other macroeconomic factors, the company said. Predictions for those key housing metrics lead with the most likely scenario, followed by other possible outcomes highlighted in the full report that could happen if the market experiences flukes, it said.

Redfin’s first 2023 prediction is that it expects about 16% fewer existing home sales in the new year compared to this year, landing at 4.3 million, with would-be buyers pressing pause due mostly to affordability challenges. In other words, people will only move if they need to.

Additionally, Redfin expects 30-year fixed mortgage rates to gradually decline to around 5.8% by the end of the year, with the average 2023 homebuyer’s rate sitting at about 6.1%. Mortgage rates dipping from around 6.5% to 5.8% would save a homebuyer purchasing a $400,000 home about $150 on their monthly mortgage payment. To look at it another way, a homebuyer on a $2,500 monthly budget can afford a $383,750 home with a 6.5% rate; that same buyer could afford a $406,250 home with a 5.8% rate. 

Redfin predicts the median U.S. home-sale price will drop by roughly 4% — the first annual drop since 2012 — to $368,000 in 2023. That’s due to elevated rates and final sale prices starting to reflect homes that went under contract in late 2022. Redfin also anticipates that new listings will continue to decline through most of next year, keeping total inventory near historic lows and preventing prices from plummeting.

Looking at overall market regions, Redfin says housing markets in relatively affordable Midwest and East Coast metros — especially in the Chicago area and parts of Connecticut and upstate New York — will hold up relatively well, even as the U.S. market cools. These areas didn’t heat up during the pandemic buying boom.

Redfin also expects asking rents to post a small year-over-year decline by mid-2023, with drops coming much sooner in some metros. Some large landlords are likely to offer concessions, such as a free month’s rent or free parking, before dropping rent prices. Redfin said it expects few current renters to become buyers next year, however, and instead may simply opt to upgrade their rentals. 

Younger renters like Gen Z-ers have more opportunities to seek apartments in relatively affordable mid-tier cities, especially with the growing options of remote work. Also due to remote work, Redfin expects the share of Americans relocating from one metro to another slowing to about 20% in 2023, down from 24% this year.

As for construction, Redfin says builders will continue to pull back on constructing new homes next year, with year-over-year declines of roughly 25% in building permits and housing starts continuing into 2023. Builders will back off most from building new single-family homes, especially pulling back dramatically in some markets like Phoenix and Dallas, where they built too many homes in anticipation of demand that’s failing to materialize.

Other predictions from the report can be found here

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