At the end of 2022, Windermere Chief Economist Matthew Gardner provided his top 10 predictions for this year. Below is a review of those predictions with some updates for the remainder of 2023.
I predicted that home prices would fall in 2023 but that the decline would not be systemic. As of April, year-over-year prices were down a little less than 2%, but they are up over 6% year-to-date. I’m standing by my forecast that the U.S. median home price in 2023 will be modestly lower than 2022, but prices will not erode in the way that some had anticipated.
As I expected, mortgage rates remained above 6% during the first half of the year, but my prediction that they would drop below 6% in the fall is now unlikely. There are two reasons why I got this wrong: the banking crisis and concerns that the debt ceiling would not be raised. As a result, mortgage rates have broken above 7% eight times so far this year and remain higher than I was anticipating by this point in 2023. Rates should settle as we move through the second half of the year and, while I still expect them to trend lower from present levels, they will hold above 6% unless there is a recession – which has about a 50% chance of happening.
Although we did see an increase in the number of homes for sale in late spring, housing supply is still running at about 40% of its long-term average and will not likely improve this year. This is, in part, because there are currently an estimated 25+ million homeowners with mortgage rates around 3% who do not want to lose that low rate by selling, so they’re staying put – for now.
Due to the limited number of homes for sale, the market still technically favors sellers. That said, what defines a buyer’s or seller’s market varies by location but, with persistently low inventory levels, I stand by my call that the market will continue to favor sellers in most markets through the end of 2023.
I expected list prices to pull back further than they have, but sellers continue to be pretty bullish when it comes to pricing their homes due to the pervasive inventory constraints. That said, all markets are local, and there are some cities where list prices for single-family homes are down between 30-50% from their 2022 peaks. However, overall, list prices around the country have not softened as much as I thought they would, and they will likely continue rising through the balance of the year.
Return to Work
The pace of workers heading back to the office has been slower than predicted. In fact, the share of people working in an office full time dropped to 42% in the second quarter of 2023 from 49% in the first quarter. Meanwhile, the share of offices with hybrid work environments rose to 30% in the second quarter, which is up from 20% in the previous quarter. I still expect more workers to return to their offices in the coming months, albeit at a slower pace than I had forecasted.
New Construction Activity
As I predicted, builders have pulled back so far this year, with new home permits and starts falling by double digits when compared to last year. This sector continues to be impacted by high financing rates and construction costs and I do not anticipate much improvement in the second half of 2023.
Market Conditions Vary
As expected, markets around the country where home prices rose the fastest during the pandemic years are the ones experiencing the biggest price declines; however, in areas that did not appreciate as quickly, home prices are still holding above their 2022 highs.
Housing affordability continues to be an issue. While some markets have experienced price declines, they are not enough to make housing affordable. Add to this the highest mortgage rates we’ve seen in over a decade, and housing remains unaffordable to many. Unfortunately, these conditions will not improve for buyers this year.
In my 2023 forecast, I suggested that the government needed to do their part to help address our country’s significant housing shortage, and we are seeing some progress in this area with a number of states either pursuing legislation to tackle this problem or creating task forces to analyze it. It’s a good start, but more still needs to be done.
For more background on these predictions, read our blog or watch Matthew’s video.