If 2022 was a roller coaster year for the housing market, 2023 is expected to bring a painful but necessary real estate hangover.
Nationally, a growing number of experts and firms are predicting U.S. home prices will fall, some expecting slight, single-digit drops, while others expect prices to fall by double digits, perhaps even over 20%.
Keep in mind, however, that during the pandemic housing frenzy from early 2020 to late 2022, the nation’s median home price ballooned by over 41%, so even if the most pessimistic predictions pan out, they aren’t slated to erase the historic price gains seen over the last two years.
The U.S. housing market is going through what Federal Reserve Chairman Jerome Powell has called a “difficult correction” and a “reset” as it comes off the tail end of a pandemic frenzy fueled “housing bubble.” In its fight with record inflation levels throughout 2022, the Fed made a series of aggressive borrowing rate hikes, which translated to a spike in mortgage rates that priced or spooked buyers out of the market.
Even as mortgage rates in recent weeks have ticked down slightly, economists are expecting higher rates to continue to dampen sales throughout 2023. Some, however, say the market needs this correction to reach a more healthy equilibrium between sellers and buyers — as well as healthier affordability.
All of this, of course, depends on how local markets fair.
In Utah, because of its continued strong job economy, experts predict the state’s housing market to experience some turbulence in 2023 but come out strong next year.
“Hang in there. 2024 will be better,” Jim Wood, one of Utah’s leading housing experts, told the crowd gathered at the Grand America Hotel in Salt Lake City for the Salt Lake Board of Realtors’ 2023 housing forecast Friday.
What will happen to Utah’s housing market?
Wood, the Ivory-Boyer Senior Fellow at the University of Utah’s Kem C. Gardner Policy Institute, detailed his forecast report commissioned by the Salt Lake Board of Realtors, explaining why he still feels optimistic for real estate even if 2023 won’t be a “year of celebration.”
“2023 will be tough for sales. It’s going to be tough for real estate agents. It’s going to be tough for home builders,” Wood said. He expects buyers and sellers will “step back and wait for the dust to settle,” many of them locked in at low, 3% mortgage rates that helped send the nation’s housing market into a frenzy in 2020 and 2021.
Reluctant sellers and priced-out buyers, Wood said, will mean 2023 will mark a year of slumped home sales. After seven years of Salt Lake County sales averaging 18,000 homes, the high prices of 2023 will mean sales will not top 13,000, he predicted, and likely range between 11,000 to 12,000.
Will Utah home prices drop?
The West was ground zero for the pandemic housing frenzy and has also been one of the first areas to see home listing prices getting slashed as the market corrects.
In Utah, housing prices have begun to decline, down from their peak in May, when the median sales price of Salt Lake County homes was $565,600. After the next seven months, the median price fell by 14% to $485,829, erasing month-over-month percent increases until “finally turning negative 2.1% in December,” Wood wrote in his report.
How far will they fall? Utah’s housing experts disagree over how much home prices will decline, though they remain confident that 2023 will not bring a full blown, 2007-like crash, and that Utah’s strong job economy will still largely insulate it from any negative impacts of a recession.
Wood has a more optimistic outlook.
Utah will see minor “year-over-year price declines in the first and second quarter of 2023, but prices will begin to stabilize by the third and fourth quarter,” he said.
Wood’s research colleague at the Kem C. Gardner Institute , Dejan Eskic, is more bearish, predicting Utah home prices will drop 9% year over year in 2023. From peak-to-trough, he expects prices to decline by a percentage somewhere in the mid to low teens, depending on interest rates.
As for interest rates, Wood noted forecasts vary widely, anywhere from 5% to 9%, but he personally expects rates to bounce between 6.5% and 7.5% in 2023.
Additionally, both Wood and Eskic predict Utah’s estimated 31,000-unit housing shortage will continue to keep home prices high, even if the state sees some price drops, so they expect Utah’s housing affordability crisis to remain a persistent issue that is pricing out more than 75% of Utahns from affording the state’s median-priced home.
Is there a housing bubble?
Powell, the Fed’s chairman, has indeed called it a pandemic frenzy “housing bubble,” but he and other experts all have consistently said it’s not like 2007 and 2008.
In his report for Utah, Wood wrote it’s “very unlikely that the recent price run-up represents a housing bubble,” though he added, “We don’t know if a bubble exists until after it bursts.” He cited Alan Greenspan, an economist and past chairman of the Federal Reserve, who defined a housing bubble as a prolonged period of housing price declines.
“Such a decline is extremely unlikely in Utah” in 2023 and 2024, Wood wrote.
Wood also said “2023 is not 2008,” when it comes to housing prices, noting “very few, desperate, unemployed homeowners face foreclosure … They can step back and wait for the dust to settle.”
As a result, Wood predicted price declines that have been tumbling since May will stabilize…
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