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It’s been basically a seller’s market since late 2020, when mortgage rates began to fall to record lows and the housing stock declined. And sellers have continued to dominate the housing market this year, despite rising mortgage rates.
But some financial experts warn that sellers and owners shouldn’t be too pushy. sky high mortgage costs could drive more buyers out of the market in 2023, which could lead to lower home prices.
But while the housing market could weaken one way or another next year, one expert believes house prices will generally not be negatively affected. And that should relieve potential sellers as well as current owners.
Home prices might not drop much at all
In a recent CNBC interview, Jim Egan, a housing strategist at Morgan Stanley, said the housing market could worsen to some degree in the new year. Specifically, sales of existing homes could fall and housing starts (ie the number of new homes under construction) could slow noticeably.
But Egan says it’s important to recognize that there are different aspects of the housing market to consider. Real estate activity, such as sales and housing starts, is expected to continue to fall in the new year. But house prices, he said, will likely be protected.
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That doesn’t mean house price growth will pick up in 2023. But it doesn’t mean house prices will fall either. And Egan doesn’t think sellers and owners need worry about the latter.
Affordability issues don’t affect everyone
While mortgage rates could rise even further in 2023, the reality is that affordability has deteriorated more over the past 12 months than it has over any other period of similar length in the US. housing market history. But it’s not current owners who are affected by affordability issues. It’s rather forward-looking and first buyers who are affected by a lack of affordability. But current homeowners who are locked into low-cost mortgages are in pretty good shape.
As such, chances are many current homeowners will be looking to stay in their homes in 2023 due to exorbitant borrowing costs. For example, why would someone with a 30-year fixed mortgage at 3% are considering swapping it for a 30-year mortgage at 7%? And if landlords stay put, housing stock should remain limited, as it has been in recent years. That might be enough to keep house prices from falling a lot.
Ultimately, house prices are subject to the general rules of supply and demand. When there is too much supply relative to demand, prices are likely to fall.
Although the current housing market conditions are not at all favorable to buyers, the demand for buying homes is still higher than the supply. And as long as this situation holds in 2023, house prices should not start to drop drastically from their current levels.
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