As 2022 comes to a close—a year that saw a 300 billion-dollar boost for housing falter in Congress, a war in Europe bringing untold horrors and disruption, and historic economic volatility from inflation and interest rates—the National Association of REALTORS® (NAR) has released its outlook for 2023, mapping out the data and trends that will shape what promises to be another challenging, unpredictable trip around the sun for real estate professionals.
Looking at everything from national mortgage rates to specific “Real Estate Markets to Watch in 2023,” NAR said they are anticipating a significant overall decline in home sales next year (down 6.8%), with prices staying essentially flat at a 0.3% gain. Rent prices are expected to continue growing swiftly at 5%, and overall GDP to remain somewhat depressed at 1.3%.
“This year is now getting back to 2014 conditions,” said NAR Chief Economist Dr. Lawrence Yun.
One of the biggest lessons from 2022 is that it’s simply impossible to anticipate everything that affects housing, with inflation proving far from being “transitory” as policymakers initially predicted, and a global economic recovery shaken by the sudden onset of war in Ukraine.
But from the current vantage point, experts who joined Yun in discussing the upcoming market remained confident that real estate would see something of a return to normalcy—still far removed from the pandemic boom, but nothing like a 2008-style crash.
“We got a decent number of buyers who are waiting for their chance as long as affordability factors align for them,” said Danielle Hale, realtor.com® chief economist. “There are some positives for some potential homebuyers…they are going to have some options and some time to make decisions.”
With broad fears of a recession brought on by a bumpy and unprecedented recovery from the pandemic, a lot of focus was on the last time the country saw a housing correction and an economic pullback.
Yun described the last housing crash as essentially lasting from 2007 to 2013, which translated to about a half decade of “struggle” for real estate practitioners. If 2022 is comparable to 2014 (at least in some ways), it is hard to imagine this “housing recession” and the 2023 market progressing anything like the Great Recession, Yun reiterated.
“Half of the country may experience small price gains, while the other half may see slight price declines,” he said.
Despite the fact that current economic fundamentals—a strong job market, essentially no subprime loans and no excess of inventory—make a full-on crash unlikely, consumers may feel very anxious about jumping into the 2023 market, Yun warned.
“They remember, perhaps, their family member who purchased back in the last housing cycle who went through that crushing, very painful foreclosure crisis,” he said. “Back in the 2008 period, there were 8 million job losses in a single year…today there are some layoffs in the mortgage industry, but if you look at the net, it is still job creating conditions.”
What to watch
The big worry for real estate practitioners remains that top-level sales decrease (currently at “near cyclical low,” Yun said), which could still leave a scarcity of business for real estate practitioners.
But the good news is, mortgage rates are likely to fall and continue falling going into next year, Yun added, predicting that rates will “settle” around 5.7%.
“I think the peak has already occurred and we are on a downward path, but we are not going back to 3% mortgage rates,” he said.
But a lack of new inventory, which remains an issue across the country, could accelerate into another crisis if demand bounces back substantially, Yun warned, reviving one of the biggest negatives from the pandemic boom market—buyers who simply can’t find a home.
“Hypothetically, if the mortgage rates go down meaningfully and the buyers return, we could encounter another housing shortage, unless we really ramp up production,” Yun said.
Another closely-watched aspect of NAR’s annual forecasts is the top 10 list of markets to watch, having a significant upside in 2023. All of these cities were located in the South, and all were defined by a handful of fundamental strengths, according to Yun—”reasonable” affordability, in-migration and high-paying jobs, among other things. These areas are projected to see prices climb by 5% or more.
Bright MLS Chief Economist Dr. Lisa Sturtevant, who joined Yun for a panel discussion, also urged people to be on the lookout for so-called “Zoom Towns”—places that recently attracted an inordinate number of wealthy remote workers, which conversely, are vulnerable to bigger declines than the market at large.
“Some of the exurban and coastal communities where people with high incomes bid up home prices…those markets are also having to reset, so there’s going to be some places where home prices are going to fall significantly from the peak,” she said.
Here are NAR’s “10 Real Estate Markets to Watch in 2023 and Into the Future:”
- Atlanta-Sandy Springs-Marietta, Georgia
- Raleigh, North Carolina
- Dallas-Fort Worth-Arlington, Texas
- Fayetteville-Springdale-Rogers, Arkansas-Missouri
- Greenville-Anderson-Mauldin, South Carolina
- Charleston-North Charleston, South Carolina
- Huntsville, Alabama
- Jacksonville, Florida
- San Antonio-New Braunfels, Texas
- Knoxville, Tennessee
Stay tuned for further coverage of NAR’s outlook for 2023.