Differing Predictions for Housing Prices Forecast Between 9.7% and -0.5% Change by May 2023


By Douglas Katz – 07/05/2022

  • All current predictions are down from previous years.
  • Predictions are for single digit or negative changes in the coming year.
  • All forecasts show capitulation that we are past the inflection point and correcting.
  • Mortgage rates had large impact on the slow down and correction.

Fortune reported yesterday on the current state of and predictions for the next year for housing in the U.S.  As usual, it is a good news bad news story depending on what side you’re on, as all predictions are for continued slower growth.  Coined The Great Deceleration by the magazine, the housing market is beginning to show visible signs of trend reversal as the Fed’s moves to control inflation take full effect and expectations are that they are not likely done with the rate hikes as we are still a good bit away from target inflation.

The most optimistic forecast was from Zillow at 9.7%.  As this is an outlier from the other predictions, I would be use as the upper bracket of any personal analysis without fully investing in the forecast being the most likely.  I am also dubious if this prediction as Zillow took a beating on their flipping business last year when their predictions and modeling likely missed the mark.   I do think that in some markets, this could still be the case however.  The inherent problem with these predictions in general is when done nationally, they lose a lot of context and regional factoring of local market trends.  It should be noted, however, while a bit rosier than the rest it is down sharply from their earlier 17.8% forecast, which validates the speed of slowdown.

Most of the other forecasts were around half of the Zillow prediction or lower.  Per the article, “CoreLogic predicts U.S. home prices will rise 5.6%. In 2023, the Mortgage Bankers Association and Fannie Mae forecast U.S. home price growth of 3.1% and 3.2%, respectively. If any of those three forecasts come to fruition, it would mean the U.S. housing market returned to a period of normalized growth.”  The last statement is the important one.  In the decades that I have been doing this job, 3% – 5% was always considered the right planning range for appreciation of a home.  30% plus was an anomaly driven by factors that we may never see again.  One prediction even had prices sinking into negative territory.  This again is an outlier, but even if the floor for analysis, it represents a possibility that cannot be ignored.  This super-cycle of price growth was long enough that buyers and sellers alike became accustomed to unprecedented and unsustainable appreciation.  This was not and is not the norm and it is unquestionably better for everyone to return to sanity.

So what does this mean:

  • Going forward, buyers and sellers should shift their analysis to match reality.
  • Sellers should not lose hope and fall into FIMO (Fear I Missed Out).
    • We are still in a sellers market for the most part and the impact may be negligible for some.  I do not say most because some markets will get hit hard, but initially sellers can expect longer time on market, lower (but not cratering) prices and less offers.
    • They may need to put in more time, effort and resources for showings and staging to beat out the competition.  The losers will be the ones with sow’s ears that they thought that they could market as silk purses.  Anecdotally, I have seen buyers walk away from deals that they would have been happy to secure even 6 months ago.
    • Timing is now of the utmost importance.  I am not saying to try time the market per se, but rather that delay and procrastination will likely worsen the impact.  We are in the height of the traditional buying season and buyers are becoming a bit revitalized again.  Those who snooze will lose.
    • If you have to transact due to a court order, i.e. divorce, this can be an issue now.  You should definitely re-assess the value of your home and adjust what you can for the new reality.  If you are under the requirement to sell by a certain time, waiting can mean that you blow your chance, especially if inflation does not correct and we hit a recession.
  • Buyers should hit the reset.
    • Every buyer who was pre-approved should get pre-approved again with current assumptions for rate.  The brackets for prices changed during the crazy cycle and are re-adjusting for the deceleration.  As new properties hit the market, buyers need to know what their money gets them and what they can afford.
    • Buyers should also resent their perspective. For as long as our short homebuying brains can remember it has been the buyers who were in the weak position.  That is changing if it has not already in your area.  If you have a strong financial profile, you can walk away from one deal and find a new one relatively quickly.  More and more homes are hitting the market and many information sources are reporting significant growth in inventory.   Not significant enough for a normal market, but definitely enough to justify a cognitive shift when shopping.

No forecast is perfect and, as you can see, by the differing predictions in the fortune article, even expert cannot agree where we will be in 2022 – 2023, but all seem to agree that we are headed downward in a trend reversal.  Sellers are the most impacted and should be cognizant of the fact that they could lose if a buyer walks and end up further down the price drop trend.  For buyers, homes will be cheaper and more plentiful to bid on as the year progresses.  As always, find good professionals to help you as real estate is confusing and hard in the best of conditions.  In times of volatility, even more so.