2023 is shaping up for big changes in the real estate market. As such, real estate agents will need to spend time educating their clients and helping them navigate the evolving marketplace.
Overall, real estate markets are forecasted to get closer to normal compared to the red-hot markets, low inventory, and escalating prices we’ve seen over the past two years.
1. Home Price Declines
After record home price growth in 2021 and 2022, analysts expect home prices to decline in 2023. Wells Fargo predicts a 5.5% drop for single-family homes, although prices are still expected to be above 2021 averages.
This trend was already starting to show in the second half of 2022 as more homes sold below the asking price than in the past two years. Sellers were also making concessions on price. Bidding wars and homes being bought sight unseen may be in the past, as sellers are likely to reduce pricing and make repairs before selling in 2023.
The median national price for single-family homes peaked in July 2022 at $449,000 according to Realtor.com before declining to $416,000 by November 2022. While home prices generally ease in the winter months, the slowdown is larger than normal seasonal trends.
2. More Inventory, Longer Time on Market
More inventory is also hitting the market in 2023. According to Realtor.com, the overall inventory of homes for sale rose 36% in October 2022, the first big increase since July. At the same time, homes are taking longer to sell, a trend expected to continue into 2023.
Home sales overall are forecasted to be down, and the average days on the market are expected to increase.
3. Interest Rate Hikes Slowing, then Decreasing
Mortgage rates, which have been rising steadily over the past year, declined in late December. The Mortgage Bankers Association says long-term interest rates have peaked, predicting rates will fall from above 7% in 2022 to 5.2% in 2023 and 4.4% in 2024.
This is good news for buyers and sellers. Many homeowners held off listing their homes for sale, as nearly two-thirds of homeowners had fixed mortgage rates below 4%.
Interest rates may continue to rise early in 2023, but then pause as inflation continues to ease. U.S. Treasury Secretary Janet Yellen says that barring an unanticipated shock, we’ll see a substantial reduction in inflation in 2023.
4. Home Affordability at Lowest Point Since 2021
Even with easing mortgage rates and inflation, however, there’s still concern about affordability. According to the St. Louis Federal Reserve, home affordability is at its lowest point since 2021.
With the trends of decreasing prices and decreasing interest rates, it looks like affordability will continue to improve in 2023. However, it likely won't reach pre-2020 levels.
5. Sunbelt Cities Among the Best Real Estate Markets
After a brutal winter, it’s no surprise that Southern real estate markets are forecast to be among some of the best real markets in the country. The Emerging Trends in Real Estate report from the Urban Land Institute (ULI) and PwC shows a continuing trend toward migration to Sunbelt cities.
All but one of the top 10 real estate markets to watch in 2023 are in Southern states.
Dallas/Fort Worth, TX
The move toward remote work over the past two years has more workers choosing where they want to live — and many are moving to warmer climates.
Challenges and Opportunities Ahead
2023 is shaping up to be a challenging time for real estate professionals amid these changes. However, there is still significant opportunity. Agents need to stay on top of the trends influencing the market and prepare buyers and sellers.
If you’re looking to become a real estate agent in 2023, Aceable’s online real estate courses can help you prepare for the licensing test. Industry and state-approved courses provide the tools and skills you need for success.