Recent forecasts from real estate industry experts suggest that home prices across the U.S. could drop through the rest of 2023, and possibly into 2024. We’ve already seen month-to-month declines in the nationwide median home value, so these predictions shouldn’t come as a surprise.
At the same time, there will probably be quite a bit of variance at the city and metro level. Some cities across the country could experience continued (albeit slower) price growth through 2023, while others could experience home price declines.
One thing is for sure: the real estate market has cooled down considerably over the past year.
Experts Forecast a Decline in Home Prices During 2023
Zillow recently surveyed more than 100 real estate industry experts and economists regarding their expectation for house values through the end of 2023. On average, the survey respondents expect home prices in the U.S. to decline by 1.6% through December 2023.
According to a report relating to this survey:
“The majority of experts are now predicting an outright decline in U.S. home prices in 2023. Although mortgage rates have moderated and are expected to remain close to the 6% level at year-end, the 2022 rate spike – and the record-high mortgage costs it ushered in – continues to shake home price expectations and market psychology.”
But Zillow isn’t the only group pointing to a possible drop in home prices throughout 2023. Economists from the Mortgage Bankers Association (MBA) also predicted that house values in the U.S. would decline between now and 2024.
In their latest forecast, published during the first week of March, MBA researchers predicted we would see a year-over-year drop in prices later in 2023. Looking beyond that, they predicted additional year-over-year declines throughout 2024. This is based on national averages, rather than local markets.
House Values Have Declined Since Summer 2022
When you look at the month-to-month data regarding home prices nationwide, the above forecasts shouldn’t come as any surprise. The truth is, home values in many U.S. cities are already dropping when measured from month-to-month.
You can see this trend in the nation’s median home value, and also by drilling down to individual cities and metropolitan areas. But at the local level, it’s more of a mixed bag.
The nationwide median home price hit a peak back in August 2022, when it reached $333,000 for the first time ever. Since then, the median price point has declined month by month.
But like all things real estate, these price trends can vary from one housing market to the next.
Currently, the biggest home price declines are happening in those housing markets that heated up the most during 2020 and 2021. Cities like Austin and Boise, which were among the hottest markets in the nation 18 months ago, now appear to be cooling the fastest. They’re also experiencing significant price declines from month to month.
In contrast, cities that saw more moderate price growth during the early pandemic days are now in a better position to weather the storm. Those housing markets could see a deceleration in prices — or a period of leveling off — as opposed to a steep decline.
Housing Affordability Sinks to a New Low
So what’s behind the current weakening of home prices? Several things.
For one, housing affordability in the United States recently sank to its lowest level in well over a decade. This in turn has reduced the number of buyers in the market seeking properties. In other words, it has chipped away at demand, while softening home prices at the same time.
According to the Federal Reserve Bank of Atlanta, which compares home prices and other housing-related costs with household incomes, housing affordability is worse today than it was during the peak of the 2008 housing bubble.
These days, a typical home buyer in the U.S. would have to spend roughly 43% of their income to afford a median-priced house. And there just aren’t that many people willing to spend that much of their income to buy a home (rightfully so).
“Housing has become incredibly unaffordable for a lot of Americans,” said Redfin chief economist Daryl Fairweather, “but Black families have been hit especially hard because they’re often less wealthy to begin with.”
The bottom line here is that the majority of Americans can’t come anywhere close to affording a home purchase in 2023. This is partly why home prices are starting to drop in many housing markets across the country.
The Importance of Researching Local Market Conditions
These trends underscore the importance of conducting local real estate market research, before buying a house. This is particularly important in those formerly red-hot markets that are now cooling rapidly.
But regardless of where a person lives, they should take a close look at current price trends and other conditions before entering the market. If it seems that prices are declining steadily, it’s probably not the best time to buy a home in that area. It might be better to take a wait-and-see approach.
On the other hand, if prices seem to be more or less stable in your area, 2023 could be a good time to buy a home. There’s a lot less competition among buyers these days, and more property listings to choose from.
Historically speaking, home prices in the U.S. tend to climb at a fairly steady pace. But every once in a while we have a “boom and bust” cycle, during which house values skyrocket and then plummet back down to earth. Some housing markets across the country could be entering the “bust” part of the cycle in 2023.
And the downturn could extend into 2024 as well.
Disclaimer: This article includes home price forecasts and predictions extending through 2023 and into 2024. Such views are the equivalent of an informed guess and should be treated as such. The Home Buying Institute makes no claims about future real estate conditions.