Researchers at Capital Economics have made some predictions on the 2023 housing market, pointing to signs the market may be close to a trough, thanks to recent improvements in housing affordability and home buyer sentiment—albeit from record lows.
The good news is brokers and agents across the U.S. are feeling more optimistic. It helps that mortgage rates have dipped over the past few months, allowing more home buyers to re-enter the market.
Many agents on the ground are already seeing a jump in home buyer activity compared to the previous month. Plus, mortgage applications have increased in the past couple months, which should contribute to higher home sales.
AFFORDABILITY IS STILL TENUOUS SINCE SUMMER OF 2022
Spiking mortgage rates last spring threw a chilling wet blanket on the Pandemic Housing Boom and sent housing market transactions into free fall. By December 2022, mortgage purchase applications had dropped over 40% year-over-year.
That said, the latest predictions from Capital Economics brings some good news for both builders and real estate agents: housing market activity may be bottoming out.
That said, hitting bottom doesn’t guarantee a swift recovery.
Housing affordability still eludes many sidelined home buyers in the U.S. That will happen when home prices spike 41% in just over two years and mortgage rates more than double from 3% to over 6% within 12 months.
For most people, facing a monthly mortgage payment that’s hundreds or even a four-digit figure above what they would have paid at the beginning of 2022 is reason enough to hesitate and spend some time agonizing over the math—especially with inflation driving up other prices.
So, as Sam Hall, a property economist for Capital Economics, has said, in tune with other voices in the industry, any recovery in the U.S. housing market this year is likely to be tepid.
Home buyer activity this year will depend on changes in affordability, the overall economy—including the Fed’s actions—and local home prices, whether they fall or hold steady.
CAPITAL ECONOMICS PREDICTIONS FOR 2023
In Hall’s own words, here’s what researchers at Capital Economics are predicting:
We expect 2023 will be the weakest year for sales since 2011 and for starts since 2014. Meanwhile, we think house prices will need to fall by a further 6% or 7% to bring affordability back to a level that will support more ‘normal’ levels of demand.
Sam Hall
Property Economist for Capital Economics
As of October 2022, the Case-Shiller National Home Price Index shows a 2.4% drop in U.S. home prices compared to the June 2022 peak.
This year, Capital Economics predicts home prices will fall 6%. They also expect to see a drop in the average 30-year mortgage rate to 5.75% by the end of the year.
Jan 18, 2023
