Expert predictions for the 2023 housing market

This week we look at what reverse mortgage professionals may expect of home values in 2023. It’s no longer deniable that the U.S. housing market is suffering a hangover from the extreme measures taken to stimulate the economy in the wake of the coronavirus pandemic. The nasty side effect is creating headaches for American home sellers with falling median sales prices and for consumers as inflation proved to be more persistent than transitory.

Chen Zhao, a senior manager, and economist at Redfin said during a panel discussion last Tuesday. 

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“We had unexpected high inflation that the Fed realized was not going to go away unless they really took this sledgehammer to the economy.” That sledgehammer hit the U.S. housing market most notably with home values beginning to fall as would-be homebuyers stepped back as mortgage rates soared. 

With reverse mortgages heavily reliant on the home’s value to make a transaction feasible or attractive today we look to several experts and economists for some idea of where the housing market may go this year. The bottom line is- forecasting the housing market is fraught with pitfalls thanks to several unknown variables at play. “We are starting to see the very early signs of sales picking back up, but at the same time, we have to be a little bit cautious because there are a number of risks,” Zhao said. “Inflation is still a risk. Mortgage rates are another source of risk. And then there are recession fears. It won’t be anything like 2008, but it is still a risk.”

If Redfin’s stock plunging is any indicator, the housing market’s outlook in 2023 is somewhat pessimistic The company’s stock fell by 15% in intraday trading last Wednesday after Needham analyst Bernie McTernan slashed his 2023 outlook for the U.S. housing market. McTernan forecasts that home sales will drop 18% year-over-year in 2023 instead of his earlier expected 10% decline. “Worsening macro conditions could put our estimates to the test, and worsen the affordability issues while housing supply remains tight”, said McTernan. 

However, according to a recent column in Business Insider Goldman Sachs believes the worst days of the housing market may be behind us. Bank strategists believe that easing mortgage rates will help the market find a bottom in six months.  “The sharpest declines for the US housing market are now behind us,” a team led by Goldman Sachs’ chief economist Jan Hatzius said in a research note. However, many are dubious of such a claim having heard the same prognostications as home values fell at an unprecedented pace. 

Goldman notes that In November the 30-year mortgage rate peaked at 7.24% but has since fallen by nearly one percent. Goldman Sachs analysts expect Austin, San Francisco, San Diego, Phoenix, and Denver to experience steeper price declines of over 10% from their peaks.

One of the lynchpins of future home values is mortgage interest rates. Lawrence Yun, the chief economist for the National Association of Realtors believes that mortgage rates have already seen their peak. He expects the average 30-year mortgage rate will hover around 6 percent and perhaps drop lower later in 2023. Yun’s forecast nearly echoes the projected trajectory of the 10-year constant maturity treasury rate to which the HECM expected rate is keyed. Forecasters expect the 10-year CMT to peak by August 2023. For more details listen to today’s latest episode of our podcast HECMWorld weekly.

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