Even in normal times, it is difficult to predict what will happen in the housing market. Given that the economy is normal at the moment, predicting what will happen to the housing market in the coming months is a largely fool’s errand. But having an investment thesis is important and it’s also fun, so I’ll try it anyway.
Below I’ll share my five predictions for the housing market in the summer of 2023 and three key indicators that could completely change my predictions.
1. Mortgage rates will fluctuate, but stay between 6.25% and 6.75%
At the time of this writing (in mid-May), the Federal Reserve raised the federal funds rate by 25 basis points at its last meeting, but indicated they are considering further increases. I think the assumption that the Fed will tighten is overconfident, as core inflation remains high and the labor market is exceptionally tight.
Whatever the Fed does, I think mortgage rates will stay relatively where they’ve been for the past few months. Since peaking in November (so far), mortgage rates have remained in the mid-6s, despite the Fed raising the FFR by several hundred basis points during that time. Bond yields have remained stable, which means mortgage rates have remained stable.
2. Home prices rise from winter lows, but remain down on a year-on-year basis
When we look at home prices, we need to look at month-on-month and year-on-year data. Monthly data shows the latest information but ignores long-term trends. The annual data contradicts this.
When I look at the sales price data, I notice two things. First, seasonal patterns persist. After hitting a low in February, prices have risen in the last few months. This is what usually happens. Second, although prices are rising, they are below last year’s prices and have been coming down year-on-year.
I believe this is likely to continue. In my view, the market will follow the seasonal pattern but will remain below last year’s prices till at least August. Although I don’t think this is the most likely scenario, I do think there is a good chance the national market will actually see positive price increases sometime after the summer.
If you’re thinking about my track record with predictions, the last time I made a price prediction was early October 2022, and I said I believed the national housing market Will be down between 3-8% by the end. of 2023. Right now, the national average selling price is down 2-3% depending on who you ask, so I’m in the range and still see this as the most likely scenario – but there’s a lot more to happen before the end. May year!
3. The sale of the house will not go well
Seasonally adjusted home sales volume is the lowest in nearly a decade. This puts downward pressure on housing prices but also has broader implications for the housing industry as a whole. The low sales volume hurts agents, loan officers and other professionals serving the housing industry.
That said, I do not believe volumes will recover anytime soon as there are not enough assets in the market even if demand recovers. Which brings me to my next prediction:
4. July and August will see the fewest new listings on record
New listings measure how many properties have been put up for sale in a given period and are still in the gutter. Nationally, they declined by about 22% year-on-year; In some markets, they are down more than 60%. There isn’t much in the market, and I don’t see any signs of that changing in the next three months.
So, as far as the data I have, I think it will be July and August with the lowest totals for those months. In other words, this July will have fewer new listings than any July in the last 20 years. The same is expected for August. People don’t want to sell now.
5. Regional differences will dominate
So far, my first four predictions have been about the national housing market, but we all know that real estate is local. Here are my regional predictions:
- The Northeast will see the most price increases over the summer, followed by the Midwest.
- South direction will be mixed. Some markets (such as Miami, Florida) will continue to grow, while others (such as Austin, Texas) will struggle.
- There will be a boom in some markets in the west. It’s been well documented that the West has seen the biggest price correction to date, but I think that may be coming to an end in some markets. Some cities such as Salt Lake City, Utah; Los Angeles, California; and Denver, Colorado, have already shown signs of slowing, while markets such as Boise, Idaho; And Las Vegas, Nevada, still show weakness.
things to see
The above predictions reflect what analysts call a “base case”. I believe this is the most likely scenario. But obviously, I don’t know exactly what will happen, and there are reasonable chances that the market will outperform or underperform my predictions. For me, the most likely things that could move the market away from my base case are:
- a US debt default: At the time of this writing, the government is deadlocked in trying to negotiate an agreement on raising the debt ceiling. If this doesn’t happen and the US defaults on its debt for the first time in history, it will certainly raise mortgage rates. Zillow recently predicted they’d go above 8% — and when they’ll come back down is anyone’s guess. If it does, I think the potential for downside becomes greater.
- labor market: The labor market has been surprisingly resilient in the face of rising interest rates, with nearly every measure of unemployment at historic lows.
The labor market is strong even when you take into account part-time jobs and people leaving the workforce. If the labor market “breaks down” and unemployment rises, it would likely lead to a recession, possibly lowering mortgage rates and helping the housing market. Unless, of course, the unemployment situation gets really bad (over 6-7%), and then it can have a negative impact on the market.
- geopolitical turmoil: We all know that at the moment there is a lot of tension in Russia, in China and in general around the world. International conflicts can indeed affect the economy, but there is no way of knowing how without knowing the nature of the conflict. All I want to say is that if there is any big international issue, then my predictions may go awry.
conclusion
This represents my current thinking about the housing market and where it will be headed in the summer of 2023. But all this is far from certain. We’ll have to check back in the autumn and see how I fared with these predictions.
In the meantime, I would love to hear your predictions for the 2023 summer housing market in the comments below.
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Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
