More than half of a panel of housing market experts and economists are predicting a buyers' market by 2023.
A Zillow Home Price Expectations Survey of 107 experts found even though skyrocketing mortgage costs are driving competition now, 56% expect a significant shift in buyers' favor by sometime next year. Another 24% predicted that shift would come in 2024, 13% pointed to 2025, and just 8% expect it after 2025.
"After the frantic rush for real estate over the past two years, buyers are finally seeing a calmer market. Those still able to afford homeownership are quickly regaining lost leverage, but this shift to a more balanced market is still in its early stages," said Nicole Bachaud, senior economist at Zillow. "Home shoppers priced out of the market are in a tight spot, though, as high and rising rents could cut further into their ability to save up for a down payment."
Inexpensive Midwest markets — such as Columbus, Indianapolis and Minneapolis — are the least likely to see home prices decline over the next 12 months, according to the panelists. Fast-growing markets in the South, like Atlanta and Nashville, are also expected to retain their heat.
Markets projected to cool the fastest are those that saw some of the largest growth over the course of the pandemic, including Boise, Idaho, Austin, Texas and Raleigh, N.C.
Suburban and exurban areas buy predicted by the panel to retain their heat over the next 12 months, while vacation areas were considered the most likely to see price declines. Also over the next 12 months, rents are expected to grow more than inflation, the stock market and home values.
Although home price growth has slowed, the market is far from pre-pandemic norms. Zillow's latest market report showed listings' typical time on market, while rising, is still 11 days shorter than in 2019. Inventory is ticking up as well, but is still down almost 42% compared to 2019.
The panel, which was surveyed between Aug. 16 and 27, also expects rent growth to outpace inflation during the next 12 months, as priced-out potential home buyers exert additional pressure on the rental market.
The panelists predict an average of 5.4% rent growth throughout 2023 — lower than the 8.6% annual growth they expect to see by the end of this year, but still higher than what Zillow data shows to be just under 4% annual growth in the years prior to the pandemic.
Although the panel-wide 2022 expected home price appreciation rate ticked up to 9.8% from 9.3% in this most recent survey, all 107 survey respondents project home price deceleration in 2023. The share of panelists who believe their long-term outlook might be too optimistic jumped up to 67% from 56% last quarter.
"U.S. home price appreciation is clearly easing up in response to the historic surge in mortgage rates," Terry Loebs, founder of Pulsenomics, said. "Our expert panel's mean projections indicate that residential rent price growth is expected to outpace headline CPI inflation over the coming three years and exceed home price growth through at least 2025. Despite softening house prices, this implies that affordability hurdles for prospective first-time homeowners will remain high and persist for years to come."
