Mortgage rates will be key in 2023, with high rates likely to make it the slowest U.S. housing-market year since 2011, according to Redfin, the technology-powered real estate brokerage.
Redfin’s forecasts for mortgage rates, home sales and home-sale prices account for a range of outcomes for inflation, employment and other macroeconomic factors. As such, predictions for those key housing metrics lead with the most likely scenario, followed by other possible outcomes highlighted in the full report that could happen if, for instance, a better-than-expected inflation report results in an earlier or bigger-than-expected mortgage-rate drop.
Prediction #1: Home sales will fall to their lowest level since 2011, with a slow recovery in the second half of the year
Redfin expects about 16% fewer existing home sales in 2023 than 2022, landing at 4.3 million, with would-be buyers pressing pause due mostly to affordability challenges including high mortgage rates, still-high home prices, persistent inflation and a potential recession. People will only move if they need to.
Prediction #2: Mortgage rates will decline
Redfin expects 30-year fixed mortgage rates to gradually decline to around 5.8%, with the average 2023 homebuyer’s rate sitting at about 6.1%. Mortgage rates dipping from around 6.5% to 5.8% would save a homebuyer purchasing a $400,000 home about $150 on their monthly mortgage payment.
Prediction #3: Home prices will post their first year-over-year decline in a decade, but the U.S. will avoid a wave of foreclosures.
Redfin predicts the median U.S. home-sale price to drop by roughly 4%—the first annual drop since 2012—to $368,000 in 2023. That’s due to elevated rates and final sale prices starting to reflect homes that went under contract in late 2022. Prices would fall more if not for a lack of homes for sale: Redfin expects new listings to continue declining through most of next year, keeping total inventory near historic lows and preventing prices from plummeting.
Prediction #4: Midwest, Northeast will hold up best as overall market cools
Housing markets in relatively affordable Midwest and East Coast metros, especially in the Chicago area and parts of Connecticut and upstate New York, will hold up relatively well, even as the U.S. market cools. Those areas tend to be more stable than expensive coastal areas, and they didn’t heat up as much during the pandemic homebuying frenzy.
Prediction #5: Rents will fall, and many Gen Zers and young millennials will continue renting indefinitely
Redfin expects U.S. asking rents to post a small year-over-year decline by mid-2023, with drops coming much sooner in some metros. Some large landlords are likely to offer concessions, such as a free month’s rent or free parking, before dropping asking rents.
Prediction #6: Builders will focus on multifamily rentals
Builders will continue to pull back on constructing new homes, with year-over-year declines of roughly 25% in building permits and housing starts continuing into 2023.
Prediction #7: Investor activity will bottom out in the spring, then rebound
Real estate investors will purchase about 25% fewer homes than a year earlier, with purchases likely to bottom out in the spring. Investors’ business model is to buy low and sell–or rent–high, and the cash they borrow to buy homes outright is no longer cheap. Fewer iBuyers in the market is also a factor in slowing activity.
Prediction #8: Gen Zers will seek jobs and apartments in relatively affordable mid-tier cities
Gen Zers are entering into a workforce with more remote-work opportunities than ever before, which means they’ll have more flexibility in where they’ll choose to start their careers than older generations. They can prioritize things like affordability, lifestyle, weather and proximity to family.
Prediction #9: Migration from one part of the country to another will ease from the pandemic boom
Redfin expects the share of Americans relocating from one metro to another will slow to about 20% in 2023, down from 24% this year. That’s still above pre-pandemic levels of around 18%.
Prediction #10: Rising disaster-insurance costs will make extremely climate-risky homes even more expensive
Some Americans will be priced out of climate-risky areas like beachfront Florida and the hills of California because of ballooning insurance costs. Redfin expects disaster-insurance rates to continue rising in 2023 (and beyond), rendering housing in some areas more expensive.
Prediction #11: More cities will follow Minneapolis’ YIMBY example to curb housing expenses
More U.S. cities will look to Minneapolis, which in 2019 became the first major city to eliminate single-family-only zoning, for inspiration in keeping rental and home prices under control.
Prediction #12: Buyers’ agent commissions will rise slightly as fewer agents broker fewer deals at lower prices
The hot pandemic-era housing market pushed the typical U.S. buyers’ agent commission down to 2.63% of the home’s sale price in 2022, its lowest level since at least 2012. But declines in home prices and sales will prop up buyers’ agent commissions in 2023. Sellers will also play a part, with some offering to pay higher commission for buyers’ agents to attract bidders.