As the economy drags into a recession in the second half of 2022, we’re already seeing the negative effects on housing markets nationwide.
Home sales have cratered over the past 3 months as a result of the Fed raising interest rates 5 times in 2022.
Home prices have already begun backtracking as a result, casting a shadow of doubt on the future of the housing market.
Many are wondering what is going to happen to home prices in 2023. Most industry experts agree on one thing:
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US Home Prices Will Fall in 2023
The most recent CPI figures show inflation is still out of control, leading most to speculate that the Fed will raise rates again when they reconvene in early November and perhaps one more time before the end of the year. This will further curb buyer demand, which can only lead to prices decreasing.
In fact, we’re already seeing this occur in many of the nation’s top real estate markets. In Boston’s real estate market, prices have decelerated throughout most of 2022.
In San Diego, median sales prices are already down -5.5% year-over-year.
Nationwide, we’re seeing prices tumble at the fastest rate since the last housing market crash in 2008. The only way to stop this trend is to get inflation under control, which our administration has not yet been able to do.
When Will Prices Go Back Up
As long as inflation has its grip on the economy, the Fed will continue to raise interest rates in an attempt to corral it.
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If inflation persists into 2023, there’s no telling how high interest rates may climb, but one thing is certain.
Every increase in the interest rate will have a negative impact on buyer demand, further decreasing home prices.
If and when the inflation rate goes back down below 5%, we’ll likely see prices level off alongside interest rates.
If the economy outperforms expectations at that time, we could see prices trend back upward towards the end of 2023 heading into 2024. If economic conditions worsen, it could take years for the housing market to recover.
Over the next 3 quarters, we could see nationwide median price reductions nearing 10-12%, which would make this housing recession just as bad as the one we faced in 2008.
The key indicator here is inflation. As long as the CPI is high, more buyers will be priced out of the real estate market.
