Mortgage News March 20, 2023
The housing market has been experiencing a cooling period, and a recent Zillow survey of housing experts indicates that home prices nationally are expected to bottom out in 2023. The Zillow Home Price Expectation (ZHPE) survey polled economists and housing experts, who predict that home prices will decline by 1.6% through December 2023, indicating a return to a more normal growth rate. Affordability challenges have been weighing down demand for homes, with lower mortgage costs in January leading to sales that tracked pre-pandemic trends. However, higher rates in February dampened buyers’ enthusiasm.
The ZHPE panel predicts that home prices will slide 1.6% in 2023, but over the following four years, growth is expected to average 3.5%, equivalent to the long-term average. Sales of new homes are expected to decline to near 2016 levels this year, and sales of both new and existing single-family homes are expected to decrease in 2023. However, the panel expects price growth to pick back up next year, with an average clip of 3.5% per year through 2027, similar to the relatively stable period from 1987-1999 before the housing boom and bust cycle in the 2000s.
Zillow’s latest in-house forecast calls for typical U.S. home values to be almost flat, rising only 0.2% over the course of 2023. The largest declines are expected to be seen in expensive California metros. Sales of existing homes are expected to fall to 4.2 million in 2023, slightly up from November and December’s seasonally adjusted annual rate of sales but lower than the 5.0 million sales in 2022.
New construction, which is also expected to see sales decline this year, will likely play an expanded role in meeting the need for inventory, as existing homeowners have been reluctant to list their properties. Builders are offering significant financial incentives to buyers to help overcome affordability constraints.
The panel anticipates a decline in mortgage rates following the initial quarter. Almost two-thirds of respondents (63%) pointed to Q1 of 2023 as the highest rate for 30-year fixed loans between now and 2025. Falling rates are expected to help affordability much more than falling home prices, at least at the current scale. The median respondent projected a 6% rate for 30-year fixed-rate mortgages at the end of 2023.
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