The National Association of Realtors predicts there will be 4.78 million existing home sales in 2023, down 6.8% from the 5.13 million existing home sales expected to close in 2022. Lawrence Yun, the trade organization’s chief economist, announced this prediction on Tuesday during NAR’s fourth annual year-end Real Estate Forecast Summit.
The 5.13 million existing homes sold in 2022 already represent a 16% year-over-year decrease and the lowest number of existing home sales since 2014. In addition, NAR said that new home sales were down 17% year over year in 2022 and were back to pre-COVID levels.
“New home sales are holding up better than existing home sales because new home sales really took a dive during the foreclosure crisis and never fully recovered from that, and hence they had a low base reference to compare,” Yun said.
In addition to a further drop in existing home sales, Yun said he expects the annual median home price to remain relatively flat year over year in 2023, rising just 0.3% to $384,500. In comparison, the annual median home price is on track to record a 9.6% annual increase in 2022.
“Half of the country may experience small price gains, while the other half may see slight price declines,” Yun said in a statement. “However, markets in California may be the exception, with San Francisco, for example, likely to register price drops of 10–15%.”
When looking at what market will be “the next Austin,” Yun identified the Atlanta-Sand Springs-Marietta, Georgia as the top market expected to outperform other metro areas in 2023.
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The other markets to round out the top 10 include: Raleigh, North Carolina; Dallas-Fort Worth; Fayetteville-Springdale-Rogers, Arkansas-Missouri; Greenville-Anderson-Mauldin, South Carolina; Charleston-North Charleston, South Carolina; Huntsville, Alabama; Jacksonville, Florida; San Antonio-New Braunfels, Texas; Knoxville, Tennessee.
“Southern states, generally speaking, meet the criteria of reasonable affordability, in-migration, and high paying jobs being created,” Yun said. “Of course we could be wrong, but I think a good number of the cities here will outperform in 2023 and probably going even further into the future.”
Although the housing market slowdown and drop in prices has meant that more and more borrowers are underwater on their mortgage, Yun anticipates that foreclosure rates will remain at historically low levels in 2023, remaining less than 1% of all mortgages next year. He also stressed that the conditions present in 2007 during the foreclosure crisis look very different than today.
“Back in 2008 there were 8 million job losses in a single year,” Yun said. “Today there are some layoffs in the mortgage industry and maybe the technology industry has stopped hiring people, but if you look at the net, there are still job creating conditions.
“Subprime mortgages, those shady, risky, self-reporting mortgages, were widely prevalent during the last cycle. This time around people have to meet the new regulations and so we don’t have those risky mortgages.”
Yun also noted the difference in inventory conditions today compared to 2007 and 2008 when there were about 4 million homes on the market.
“The probability of a price crash is essentially very small given the lack of supply now,” he said.
On top of flat median home price growth, Yun said he expects mortgage rates to continue to come down slightly and stabilize at roughly 5.7% as the Federal Reserve slows the pace of interest rate hikes to control inflation.
“I think the peak has already occurred and we are on a downward path, but we will not go back to 3% mortgage rates. The Federal Reserve will raise interest rates, but that is already priced in,” Yun said. “I think the mortgage rate could go down even further because there us a gap between the 30-year fixed rate mortgage and the 10 year treasury yield and inevitably the abnormal high spread will begin to narrow, which means that there is even further room for mortgage rates to decline in the upcoming months as their spread narrows.”
Yun’s predictions are mostly in line with those he made last month at NAR’s NXT conference in Orlando, Florida, where he told realtors to expect homes sales to drop 7% next year, while the median home price would increase 1%.