The housing market has further to fall before mortgage rates deflate from historic highs in 2023, Redfin predicted.
Next year will bring the slowest housing market in a dozen years, the brokerage forecast in its 2023 housing outlook. Existing-home sales will decline 16 percent year-over-year, rounding out at 4.3 million deals, driven by affordability issues from elevated prices and borrowing costs.
The brokerage predicted both prices and mortgage rates will decline next year, at least slightly. The median home sale price to drop by 4 percent, the first annual drop since 2012.
Limited supply, however, will prevent prices from bottoming out further. Homeowners also won’t have to fret underwater mortgages, as most current homeowners are locked in much lower mortgage rates than what the market has dictated in recent months.
Mortgage rates have started to decline in recent weeks, but will land below six percent by late 2023 to close the year around 5.8 percent. The average rate for the year is expected to be around 6.1 percent.
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Redfin expects asking rents will continue their decline from record highs reached in 2022 into the middle of the year due to rising supply and continued difficulty for people to buy homes, leading some to rent indefinitely.
Builders will favor construction of multifamily rental buildings in place of single-family homes, which piled up into crushing inventory levels after a rush of construction during the pandemic.
Many of these predictions hinge on the Federal Reserve’s moves in the coming months. The Fed’s decision to start raising interest rates in the spring brought many of the shifts embroiling the housing market, including the hiked mortgage rates of the past nine months.