Revised forecast a sign that spring was more showers than flowers 

Realtor.com's updated housing forecast for 2023 has a more bearish tone, reflecting how hard the real estate market has been hit by the Federal Reserve's efforts to tame inflation.

The company's economists are now expecting national home prices to decline 0.6% in 2023, a reversal of its original, rosier 2023 forecast released in November, which predicted a 5.4% increase. 

Danielle Hale, Realtor.com's chief economist, said slower price growth at the end of 2022 had an outsized impact on the revised forecast. 

Realtor.com also changed course on where inventory is headed. In its previous forecast, inventory of existing homes was expected to go up 22.8% by the end of the year; the revised forecast now predicts a 5% year-over-year decline.

Hale said the cause was twofold: Inventory lost momentum in the last months of 2022, resulting in a lower starting point for 2023. And then existing homeowners made the situation worse by sitting on the sidelines, limiting the number of homes on the market.

Mortgage rates were another significant factor. In the past, buyers have tried to beat rising rates, boosting home prices. This time around, mortgage rates rose too quickly, which scared buyers off.

"Now that prices have started cooling, we expect that they'll continue to do so until fundamentals are back in line," Hale said in an email. Specifically, the share of income spent on housing needs to return to historic norms, Hale noted. 

"That can happen in one of several ways. Incomes can rise, home prices can cool, or mortgage rates can dip. Our forecast projects that we're going to see all three contribute to getting housing costs back in line, and this adjustment is likely to take several years," said Hale.

Realtor.com also revised its forecast for the number of existing homes sold in 2023 from 4.5 million to 4.2 million. If the revised total of 4.2 million is accurate, that would be the lowest level in 11 years, when the economy was still recovering from the Great Recession.

The "lock-in effect" of ultra-low interest rates is expected to be a stronger factor than initially predicted, leading to fewer sales, according to the updated forecast.

On a more promising note, Realtor.com is now expecting mortgage rates to settle around 6.1% at the end of 2023. In its original forecast, it expected rates to end 2023 at 7.1%.

But the real estate recovery still has a ways to go.

"The housing market has really seen a double whammy in 2023, with a retrenchment in the number of homes for sale coupled with still-high prices and mortgage rates that have kept both first-time and repeat buyers on the sidelines," Hale said.