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2023 Housing Market Forecast: Top Trends to Watch

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If you’re thinking of buying or selling a home in 2023, you’re probably eyeing the market cautiously. And there are good reasons to pay attention.

Housing prices surged to historic highs in recent years, and now rising interest rates are poised to shake up demand — leaving many wondering if there will be a housing market crash in 2023.

At the same time, housing supply remains strapped in many parts of the country and inflation continues to squeeze construction teams. It all begs the question: What will the 2023 housing market mean for buyers, sellers, and homeowners?

This 2023 real estate market forecast digs into insights from HomeLight top agents and housing market economists, including Ken H. Johnson, Ph.D., a real estate economist and associate dean of graduate programs at Florida Atlantic University; Franklin Carroll, VP of analytics and modeling at the Kukun and former credit risk analyst for Fannie Mae; and Kurt Buehler, a top real estate agent with more than 30 years of experience selling in the Dallas-Fort Worth area.

Here’s how the experts expect the real estate market will move in 2023, along with what those shifts could mean for buyers, sellers, and homeowners.

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What to expect from the housing market in 2023

In the last few years, the housing market has featured dramatic price hikes and rapid home sales. However, as the Fed attempts to fight back inflation, mortgage rates have marched to recent highs — with the average 30-year fixed mortgage leaping from 2.68% in December 2020 to the 6%-7% range in December 2022. That could curb demand and pour cold water on hot home prices. As a result, experts believe the 2023 housing market will settle into a new era — where sales calm down, and prices simmer.

At the same time, high costs are weighing on construction teams, and that could squeeze an already tight housing inventory supply. And population increases may strain the housing supply chain even more.

Overall, the housing market is taking on a unique shape in 2023. Here’s a look at what the experts believe these shifts will mean for the housing market in the next year:

High home prices will likely dip, but may not fall

In 2023, housing experts expect home prices to inch lower in most areas of the country. However, Carroll says those price declines may be modest overall.

“We are seeing price declines,” he says. “We don’t see them as being that large. I’m guessing they will be somewhere between 2% and 5%.”

Dr. Johnson says housing prices in 2023 will likely hinge on each individual housing region’s population growth trends and inventory.

“We think that in some areas of the country, like southeast Florida, we won’t see huge price declines because of the huge inventory shortage and because of the huge increase in demand,” he explains.

On the other hand, Dr. Johnson does say that in areas of the country that don’t have population growth or inventory shortages providing a price cushion, home values could dive more sharply.

“If there’s not an inventory issue or there’s a minimal inventory issue, with a stable population to declining population, you’re probably going to see significant pricing declines — not only in the coming year but likely in the coming decade,” he says.

Mortgage rates will dampen supply and demand

The Federal Open Market Committee raised its benchmark interest rate in December for the seventh time in 2022. While the 0.5% hike was smaller than the four-straight 0.75% increases, each upward push of the key federal funds rate can move mortgage rates higher. As the Fed continues to try tamping down inflation, high interest rates will likely continue — or at least stay above 2020 levels in 2023.

Carroll says high mortgage rates will curb demand since new buyers can afford less when their loan rates are high. However, he also says that high mortgage rates could discourage sellers who don’t want to take on a higher mortgage for their next home.

“While buyers will be constrained by the fact that they’ll need to pay more on their mortgages, sellers are also going to be constrained by the fact that they’re not going to want to buy a new house with a new mortgage,” says Carroll. “The main effect is going to be that sales volume just declines.”

Homebuyers will gain an edge

Although markets will vary by region, experts expect homebuyers to see more buyer-friendly markets in 2023. HomeLight data found that agents are already seeing the housing market dip into buyer-friendly territory. According to HomeLight surveys, in Q2 of 2022, 95% of top agents dubbed their market a “seller’s market.” In Q3, that figure dropped to 51%, and it tumbled to 30% in Q4.

“No ifs, ands, or buts, I believe we’re going to be in a buyer’s market in 2023 with increased inventories,” says Buehler. “I don’t think we’re going to see a massive decrease in pricing. I think we’re going to see a decrease in transactions.”

That signals a big shift from recent years where home sellers wielded major power. According to the market data website Statista, a record number of homes sold above their bidding price during the pandemic — with as much as 56% of homes selling above their listed price in July of 2021. Buehler says homebuyers can expect that ultra-competitive market to subside in 2023.

“When a house was listed back in April or May, it was listed at the right price, but what it sold for was not a market price. What it sold for was a bidding price,” he explains. “We don’t have that market anymore.”

That means homebuyers could see a kinder market where they can negotiate better deals in 2023.

The seller is going to face more competition, so now instead of just sticking their house out there and not prepping it or staging it, they need to get back to the basics of real estate, and that is: present the product.
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Home sellers will need to reset their expectations

As the market softens, home sellers in some parts of the country may need to readjust their pricing expectations. And they should brace themselves for fewer bids and more competition.

As Buehler explains, “The seller is going to face more competition, so now instead of just sticking their house out there and not prepping it or staging it, they need to get back to the basics of real estate, and that is: present the product.”

And power already appears to be swinging toward buyers. According to HomeLight top agent surveys, 53% of agents now say buyers are pushing back on inspection items. That’s a 23% increase from the previous quarter. What’s more, that same survey found 77% of agents are seeing contingencies sent back and that buyers are less likely to waive them. That all means sellers will likely need to spend more time negotiating terms as demand slows and buyers gain power.

Homeowners could see appreciation dip

As demand cools in 2023, homeowners likely will see home values peel back. Home appreciation shot up to record highs throughout 2021, but appreciation rates slowed in 2022. According to the National Association of Realtors® (NAR), 80% of metro markets reported double-digit annual price appreciation in the second quarter of 2022. That figure slid to just 46% in 2022’s Q3.

Carroll says home values will continue to trend down in 2023 but not at levels that should panic homeowners.

“There’s going to be a modest decline, but most buyers are still going to have some sort of buffer,” he says.

Cash buyers may secure an advantage

While many buyers will be intimidated by high mortgage rates in 2023, that could open the market up for one specific set of homebuyers: cash buyers.

“Cash buyers are going to be the winners,” says Carroll. “People who have cash lying around with which to buy a house, they’re going to get a discount. And there’s a sense in which the higher interest rates are going to leave sellers and typical buyers both in a weaker position.”

In 2023, more cash buyers and investors may swoop into the market and try to scoop up properties at a discount. In fact, Buehler says he’s already seeing that pattern emerge.

“I just received a cash offer on one of our listings yesterday, and the listing was listed at 3.15K, and the cash offer came in at 2.44K. We would have never seen a cash offer come in like that from an investor a year ago,” he says. “And so we’re seeing the cash offers come in much lower than normal.”

What will drive real estate market trends in 2023?

Wondering what’s propelling the biggest real estate market trends for 2023? These are a few of the biggest factors the experts say will reshape the 2023 housing market:

Interest rates

In order to cool down an overheated economy, the Fed has decided to raise interest rates. And although the Fed doesn’t directly control mortgage rates, interest rate hikes tend to prop up mortgage rates. Higher mortgage rates mean housing becomes more expensive for borrowers, and that can dampen demand or cause buyers to lower their housing expectations.

Population Growth

States and cities within the U.S. continue to grow at significantly different rates. Going into 2023, population growth is concentrated heavily in the U.S. South and West. According to the U.S. Census Bureau, all 15 of the fastest-growing large cities from 2020 to 2021 were in the same five states:

  • Texas
  • Arizona
  • Florida
  • Tennessee
  • Idaho

Dr. Johnson says that high demand in areas where populations are booming should catch home prices before they fall significantly. However, in those popular areas, he expects affordability issues to worsen in 2023.

“In places with significant expansion in population and inventory shortage, you’re going to see prices pretty stable,” he explains. “They could go down a little bit, but I’m pretty confident in saying high population growth with inventory shortages will fare, in terms of property prices, much better than the other extreme — less of an inventory crisis and less in terms of population.”

Housing inventory

Housing inventory is expected to shift in 2023 — and the number of available units will sway home prices and sales. Overall, there is a housing supply shortage that is likely to continue in many markets in 2023. At the same time, as mortgage rates remain high, Carroll says potential home sellers may feel what housing economists have called, “The Locked-in Effect.” This is a scenario where homeowners decide not to sell their home because they’re worried they’ll need to pick up an overly expensive loan on their next house.

“There are going to be a lot of people who stay put,” he says. “They like their present mortgage. They like their mortgage payment. Whatever they gain from moving isn’t going to be enough to compensate for that increase in their mortgage payment.”

Inflation and affordability

Historic inflation continues to pile extra financial weight onto U.S. consumers. And unaffordable housing could scare off buyers in 2023. According to the Bureau of Labor Statistics, the price of goods and services jumped by 16% over the last five years. Buehler says that potential buyers may be sidelined in 2023 as they’re hit by both high inflation costs as well as high mortgage rates.

“Inflation and the interest rates are just outpacing what increases in pay they’ve received, and people can’t afford it,” he says. “So that’s why we’re seeing the decrease in the number of buyers, and I think that’s why we’re going to see a decrease in the number of transactions.”

How Much Is Your Home Worth Now?

As you look ahead and plan your next move, you can get a near-instant real estate house price estimate from HomeLight for free. Our tool analyzes the records of recently sold homes near you, your home’s last sale price, and other market trends to provide a preliminary range of value in under two minutes.

How fast (or slow) will homes sell during the rest of 2023?

If you’re expecting homes to fly off the shelf in 2023 the way they have in years past, you may want to reset your plans. Carroll says he expects home sales to slow down significantly in 2023.

“The main effect is going to be that sales volume just declines,” he explains. “Demand is going to drop off. At the same time, the supply of housing available is going to drop off.”

As a whole, Carroll says he suspects housing sales could drop by as much as 20% in the upcoming year. And that downward trend appears to have already started. According to NAR, existing home sales fell by 5.9% in October.

Carroll also says reluctant buyers will leave homes sitting on the market longer in 2023 — upping days on market.

“I expect days on market to increase,” he says. “[Sellers] should expect to get slightly less for their house and to have to market it longer.”

How will housing trends impact homebuyers and sellers?

With so much changing in the housing market, it’s natural for homebuyers and sellers to wonder, “Will there be another housing market crash?” Carroll says that even if home prices trend downward, he doesn’t expect a major crash in 2023.

“I don’t think there’s reason for anybody to panic,” he says. “I don’t think we’re going to see the sort of massive declines and foreclosures that were part of the bubble last time.”

Even if there’s a significant market correction in parts of the country in 2023, experts agree that price corrections within the housing market will vary from one region to the next. This is what the experts say home sellers, buyers, and homeowners can plan for in 2023:

What home sellers can expect

For home sellers, the market is likely to soften in many areas. As interest rates stay high, and buying a home becomes more expensive for many, there are a few things home sellers can expect:

  • Fewer bids on your home: According to HomeLight insights, 64% of agents say homes within their markets are not receiving multiple offers. That same survey found 98% of agents report bidding wars were either declining or nonexistent in Q4 of 2022. Overall, 2023 home sellers may want to say goodbye to the days when consistently high bids poured in.
  • A higher mortgage on your next home: Remember, if you’re selling your primary residence, you’ll need to live somewhere. That may mean taking on a higher mortgage if you decide to buy a new home after your sale closes.
  • More days on the market: Days on market are likely to increase in 2023 as financing remains expensive. That means sellers should prepare to list and market their home for longer.
  • Lower demand: Experts believe demand will be squeezed as affordability and high mortgage rates edge many new buyers out of the market. Sellers will want to prepare by marketing their home aggressively and pinning down the right listing price for their area.

What homebuyers can expect

If you’re thinking about buying a home in 2023, there are a few things the experts say you should expect:

  • Less competition: Homebuyers can plan on lower demand, less homebuying competition, and a more buyer-friendly market in 2023. “It’s going to be a little bit easier,” explains Dr. Johnson. “There’s going to be fewer buyers. The market is going to be everywhere a little softer to dramatically softer, so sellers will be a little bit more giving.”
  • Pricing breaks: Although home prices may not fall dramatically in all areas, it’s likely that most home prices will slip from their recent highs. That means homebuyers could find more affordable housing in the year to come.
  • Higher mortgage rates: As the Fed continues to combat inflation, expect mortgage rates to stay high. That might mean you’ll need to buy less house or tighten your budget as a borrower.

What first-time homebuyers can expect

The 2023 real estate market might feel intimidating if you’re a first-time buyer. However, there are a few important patterns first-time homebuyers can plan for:

  • High mortgage rates
  • Tight housing supply
  • Cash-buying opportunities
  • Chances to refinance

In HomeLight’s new year 2023 survey, 67% of agents say that first-time buyers will explore more affordable areas. In addition, 32% of surveyed agents believe that first-time buyers will find even the higher rates tolerable compared to the cost of rent, which is up 18% on average over the past five years.

What homeowners can expect

If you’re a homeowner, you may be wondering if your home will retain its value in 2023. Carroll says that, although he expects home values to dip in the coming year, there’s no need to panic — even if you bought a home recently.

“There’s going to be a price decline, so there’s going to be some loss of equity,” Carroll explains. “I think most borrowers will have enough of an equity cushion that they’re still going to be in the money.”

For homeowners who bought in at a time of high mortgage rates, 2023 could also present opportunities to refinance. Although rates are unlikely to dive back to recent lows anytime soon, they may tick lower in the coming years if the Fed’s moves push down inflation successfully.

What retirees can expect

On the mature end of the real estate pool, more retirees are expected to sell in order to cash out and move out of state or travel. Retirees may also expand their homes for children to move back in, helping them to save money to purchase in the future.

In HomeLight’s survey, 39% of agents say that retirees will adapt their homes to age in place, and 22% say they will adapt their homes for intergenerational living.

In response to market conditions:

  • 59% of agents predict retirees will delay plans to sell or remain in their current homes
  • 55% predict retirees will look to sell, downsizing in the process
  • 42% say retirees will change where they plan to retire, in response to higher costs

What renters can expect

Renters have been pummeled by record-high costs throughout the last year. In 2023, Dr. Johnson expects rent prices to back down from their recent highs. However, even if prices drop in the next year, he says affordability could be a problem for renters in popular areas.

“I think we’re either going to see price declines, and if we don’t see those, we’re going to see prolonged affordability issues,” he says. “Nobody is getting out of this spike scot-free.”

He also says he expects the U.S. to become a more renter-friendly nation in the coming years. And he stresses that renters can come out ahead in the long run if they’re able to find deals and re-invest wisely. However, he emphasizes the best routes to wealth in 2023 take two key forms when it comes to housing decisions: buy and own or rent and invest.

“I would stress that there are multiple ways to build wealth,” he says. “Own and build equity or rent and re-invest. Don’t rent and spend your money on beer and cookies.”

Navigate the shifting market with expert guidance

Overall, the housing market is poised to shift in 2023. High mortgage rates, population growth, and inventory levels could all shake the foundation of the market in the coming year. However, as the market tightens, buyers and sellers can benefit by leaning on the help of an experienced real estate agent who’s familiar with your unique housing market.

If you’re looking for a top-performing agent, HomeLight can connect you with a leading professional from your community or buying market. With the guidance of a proven agent by your side, you’ll have what you need to navigate the 2023 market with confidence.

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