NAR 2023 forecast: Expect a soft landing nationally, with some turbulence
NAR's Lawrence Yun and a panel of four other economists agreed that a crash was unlikely, but discussed both new and chronic issues affecting the market.
Key points:
- Expect a continued drop in home sales and prices that remain fairly flat overall.
- Cooling inflation could lead to lower mortgage rates in the mid-5% range next year.
- Lack of inventory will keep home prices from plunging nationally.
Economists are still expecting a soft landing for the real estate market in 2023, as more signs point toward cooling inflation that could lead to lower mortgage rates.
That's the story nationally — but at the local level, it's expected to be a bumpier ride as areas that boomed during the pandemic may face a significant price pullback in the coming year.
That seemed to be the consensus at NAR's fourth annual year-end Real Estate Forecast Summit on Dec. 13.
NAR Chief Economist Lawrence Yun projected home sales will be down nationally around 6.8%, with home prices increasing by less than 1% in 2023 — but he's not concerned about a potential national home price crash like the one that occurred in 2008, because the housing and economic environment is much different today.
"Despite all the talk of a housing price crash, the median prices are still up from one year ago, by 4.8%," Yun said, though he acknowledged that for the people in the industry, the big drop in sales has been painful. Still, "the probability of a price crash is essentially very small given the lack of supply," Yun said.
He pointed to a few indicators of relative market stability, including:
Inventory, which remains quite low because of the underbuilding that's taken place for the past decade
Mortgage delinquencies and foreclosure rates, which account for only a small share of loans
Healthy employment numbers, which suggest a stable job market despite recent layoffs in the real estate and tech industries
Even though Yun doesn't see a market crash in the future, areas that experienced the biggest growth over the past couple of years may see prices fall more sharply. As the market normalizes, Austin and Salt Lake City are among the metros that could face larger price corrections, said Yun.
Confidence is down among consumers, builders
The panel, which included Yun and four other national real estate economists, agreed that a price crash is unlikely, but there were discussions and differing perspectives about how tough the coming year will be for buyers and sellers.
Buyers and sellers going into 2023 are experiencing a "crisis of consumer confidence" said Selma Hepp, executive of research and insights at CoreLogic.
"Sellers are contending with not wanting to reduce their prices, buyers are contending with the fact that headlines are saying home prices will come down… they are now trying to decide whether to enter the market with the very likely outcome being that (they) may end up with negative equity."
One factor keeping prices flat nationally is inventory; some sellers are waiting on the sidelines, and there aren't enough new homes to fill the gap.
Danushka Nanayakkara-Skillington, assistant VP for forecasting and analysis at the National Association of Home Builders, expects new home construction to be around 750,000 units next year, well below the historic norm of around 1 million units a year.
While lumber prices have gone down, other materials (like concrete) remain costly, resulting in an overall increase in home construction costs, said Nanayakkara-Skillington. She added the industry is also short about 2 million workers, so even if there is demand, builders would have trouble keeping up.
"I think unfortunately the supply-side issues, especially with the lack of skilled labor… is a long-term, chronic issue," Nanayakkara-Skillington said, noting that the issue has persisted since the Great Recession. "We have the demographics, we have the demand, … [but] I do not foresee these [supply-side issues] being solved in the near future."
Interest rates will dip, some markets will thrive
Given the latest indicators that inflation is cooling, Yun is expecting 30-year mortgage rates to settle in around 5.7%. After rising above 7% in late October, rates have steadily fallen to around 6.3% last week.
In this uneven market for 2023, boomtowns may continue to experience more noticeable price declines, but Yun expects some areas will see growth in the coming year.
He foresees a sunnier forecast in Southern markets including Atlanta, Raleigh, North Carolina and Dallas.