The housing market is down from its peak in the summer of 2022 cooled by rising borrowing rates and many previously red-hot markets being overvalued. But will the US see a housing market crash in 2023?
While the general downturn is expected to continue, it depends on which market, with four potentially set for a major correction. Other markets though could come through with but a scratch and some even seeing slight gains.
Surging housing prices halted
The Federal Reserve dropped interest rates to near zero to help impulse the US economy devastated by the onset of the covid-19 and the disruptions it caused around the world. That helped push mortgage rates to historic lows and gave homebuyers the chance to purchase with much cheaper credit.
When combined with the mass migration of Americans who no longer had to live close to where they worked as remote working became the norm for those who could along with those who moved spurred by the pandemic to make a change in their lives, it sent house prices soaring across the nation. However, the Fed began tightening monetary policy last year with a series of aggressive rate hikes to rein in inflation that pushed home loan borrowing costs to their highest since 2002.
The rising cost of purchasing a home pushed many would-be buyers out of the market as well as a worry that an economic slowdown was on the horizon. The reduced demand has helped calm a frothy market slowing the pace of existing-home sales which had declined for eleven straight months by December. Prices have also retreated, after topping $400,000 in the spring of 2022, the median existing-home price for all categories dropped to $366,900 by the end of the year. Still 2.3 percent higher though than the same time the year before according to the National Association of Realtors (NAR).
Will the housing market crash in the US in 2023?
Goldman Sachs advised clients in a Jnauary letter that four US cities will see a major boom-to-bust comparable to that experienced during the 2008 housing bubble bursting. At that time, across the US home prices tanked around 27 percent according to the S&P CoreLogic Case-Shiller index leading to the Great Recession.
While this deflating housing market is not like the crash 15 years ago, strategists from the bank forecast homes in San Jose, California; Austin, Texas; Phoenix, Arizona; and San Diego, California, all losing about 25 percent of their value. However, other parts of the nation will see more moderate corrections, and some could possibly even experience modest gains like Baltimore and Miami.
It will be a moderate downturn
The consensus among housing experts according to chief economist at NAR, Rob Dietz, is that they are all “thinking this is going to be a moderate downturn.” He along with his colleagues don’t expect “price drops on the scale of the declines experienced during the Great Recession.” Furthermore the dynamics are much different than that massive downturn with household and bank finances in much better conditions, and millions of homeowners locked in sub-five-percent mortgage rates.
Helping matters, mortgage rates have come down after peaking in late October and early November by nearly a full percentage point. The 30-year mortgage rate ticked down to 6.09 percent for the week ending 2 February, the lowest level since September.
This means that potential homebuyers can purchase more with their money, for example those with a $2,500 budget can now afford to spend $35,000 more than in November according to Redfin. That puts a $400,000 home within their range.
Homebuyers and seller expected to reenter the market
Chen Zhao, the lead economic researcher at Redfin says the residential real estate brokerage “expect more homebuyers and sellers to gradually return to the market by springtime.” However, mixed economic news and reactions from the market “mean the recovery will be uneven.”
The slower pace of interest rate hikes by the Fed are good news for mortgage rate as they “are unlikely to rise further.” But Chair Jerome Powell said that policymakers are planning ongoing rate increases to fight inflation. This “will likely prevent the steep mortgage-rate decline that some optimistic buyers have been waiting for,” said Zhao.