It is difficult to predict what will happen in the housing market, even in normal times. Given that the economy is anything but normal right now, predicting what will happen to the housing market over the next few months is pretty much a wild ride. But it’s important to have an investment thesis, and it’s also fun, so I’ll give it a try anyway.
Below, I’ll share my five predictions for the housing market in the summer of 2023 and three important indicators to watch that could completely change my forecast.
1. Mortgage rates will fluctuate, but will remain between 6.25% and 6.75%
At the time of this writing (mid-May), the Federal Reserve raised the fed funds rate by 25 basis points at its last meeting, but indicated it was considering a pause going forward. I think the assumption that the Fed has finished tightening is overconfident, as core inflation remains high and the labor market is exceptionally tight.
Regardless of what the Fed does, I think mortgage rates will stay relatively similar to what they have been for the past few months. Since peaking (so far) in November, mortgage rates have remained in the mid-6s, although the Fed has raised the FFR by several hundred basis points during this period. Bond yields have been stable, which means mortgage rates are stable.
2. Home prices will rise from winter lows, but remain low year over year
When we look at house prices, we need to look at month-over-month and year-over-year data. Monthly data presents the most recent information but neglects long-term trends. Annual data does the opposite.
When I look at the selling price data, I see two things. First, seasonal trends hold. Prices have risen over the past two months after hitting a low in February. This is what generally happens. Second, although prices are rising, they are lower than last year’s prices and are down year over year.
I believe that will probably continue. In my view, the market will follow seasonal trends but will remain below last year’s prices at least until August. Although I don’t think this is the most likely scenario, I do think there is a good chance that the domestic market will show positive price growth after the summer.
If you’re wondering about my forecasting background, the last time I did a price forecast was in the fall of 2022, and I said I thought the national housing market would be in down 3-8% by the end. of 2023. Right now the national median sale price is down 2-3%, depending on who you ask, so I’m in range and still consider this the most likely scenario, but a lot can happen before the end of the year!
3. Home sales will not recover
The seasonally adjusted home sales volume is the lowest in about a decade. This tends to put downward pressure on housing prices, but also has general indications for the housing sector as a whole. Low sales volume is hurting agents, loan officers and other professionals serving the housing industry.
That said, I don’t think volume will pick up any time soon as there simply aren’t enough properties on the market, even if demand picks up. Which brings me to my next prediction:
4. July and August will see the lowest new registrations ever
New listings measure the number of properties listed for sale in a given time period that are currently in the gutter. Nationally, they are down about 22% year over year; in some markets, they have fallen by more than 60%. There’s not much on the market, and I don’t see any signs of change in the next three months.
As such, I see July and August as the lowest totals for those months as far as I have data. In other words, this month of July will have the fewest new registrations of any July in the past 20 years. Expect the same for August. People just don’t want to sell right now.
5. Regional Differences Will Rule
My first four predictions so far have all focused on the national housing market, but we all know real estate is local. Here are my regional predictions:
- The Northeast will see the strongest price growth over the summer, followed by the Midwest.
- The South will be a mixed bag. Some markets (like Miami, Florida) will continue to grow, while others (like Austin, Texas) will struggle.
- The West will see some markets rebound. It has been well documented that the West has seen the biggest price corrections to date, but I think it could end in some markets. Some cities like Salt Lake City, Utah; Los Angeles, California; and Denver, Colorado, have already shown signs of bottoming, while markets like Boise, Idaho; and Las Vegas, Nevada, still show weaknesses.
Things to watch
The above predictions represent what analysts call a “baseline scenario”. This is what I think is the most likely scenario. But obviously I don’t know what will actually happen, and there are reasonable odds that the market will either beat my forecast or underperform it. For me, the most likely thing that could move the market away from my base case is:
- US debt default: As of this writing, the government is at an impasse trying to broker a deal on raising the debt ceiling. If this does not happen and the The United States defaults on its debt for the first time in history, it will almost certainly drive up mortgage rates. Zillow recently predicted they would rise above 8% – and when they come back down anyone could guess. If that happens, I think the negative case becomes more likely.
- The work market: The labor market has been surprisingly resilient in the face of rising interest rates, with almost all measures of unemployment at historic lows.
The labor market is strong even taking into account part-time jobs and people leaving the labor market. If the labor market “breaks” and unemployment rises, it will likely cause a recession, possibly lowering mortgage rates and helping the housing market. That is, of course, unless the unemployment situation gets really bad (more than 6-7%), and then it could have a negative impact on the market.
- Geopolitical unrest: We all know that there is a lot of tension with Russia, China and generally in the world at the moment. International conflicts can really impact the economy, but there’s no way to know how without knowing the nature of the conflict. I just want to say that if there is a big international problem, it could disturb my predictions.
This represents my current thinking on the housing market and how it will evolve over the summer of 2023. But all of this is far from certain. We’ll have to check back in the fall and see how I did with those predictions.
In the meantime, I’d love to hear your predictions for the summer 2023 housing market in the comments below.
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Note by BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.