Whether it's 2022 or 2023, U.S. Housing Market Performance Will be Tied to the Interest Rate Whims of The Fed
The year 2022 brought a thriving residential home investment market to its knees.
But you’d never have guessed that based on how the year started, with skyrocketing home values and bidding wars. When the Federal Reserve began raising interest rates in February in its efforts to curb inflation, followed by another six increases, the market landscape looked very different. As the residential real estate market heads into 2023, the obvious question is: How will it perform for investors in 2023?
One thing is for sure at the end of 2022, fewer people are buying homes. According to the National Association of Realtors (NAR), the rate of contracts to buy previously owned homes in the U.S. fell for the sixth straight month in November. Based on signed contracts, the NAR’s Pending Home Sales Index fell 4% to 73.9% last month from October's downwardly revised 77%. Save from the early months of the pandemic, the November numbers were the lowest reported by the NAR since 2001.
"Pending home sales recorded the second-lowest monthly reading in 20 years as interest rates, which climbed at one of the fastest paces on record this year, drastically cut into the number of contract signings to buy a home," NAR Chief Economist Lawrence Yun said. "Falling home sales and construction have hurt broader economic activity."
Real estate agency news service Housing Wire predicts that, given current trends, home prices will drop 10% in 2023. But as Benzinga found, based on discussions with a number of real estate investment professionals, the potential drop depends on location and could be as high as 25% in some areas.
Housing Wire also predicts that the U.S. will see a continued increase in housing inventory as multiple months’ supply of inventory returns to levels in line with a balanced market, considered five to six months, or possibly even a buyers’ market of six months or more. Days on the market will also likely continue to stretch out and peak next spring along with supply.
Housing Wire predicts a positive shift, possibly by the second half of 2023, predicated on the Fed reversing its rate hikes.
“Presuming inflation is now on track to move toward target levels, and the Federal Reserve won’t have to adopt more aggressive policies, the first half of next year will likely bear the brunt of higher interest rates on the overall economy and higher mortgage rates on the housing market,” the publication stated.
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