The real estate market jumped in value during 2022, with prices for homes rising in many states. However, a different picture is on the horizon for the following year.
What will happen after the holidays, and could we see other changes?
According to the Federal Housing Finance Agency's Home Price Index (FHFA HPI), U.S. residential property values increased by 17% from the second quarter of 2021 to the same period this year.
In addition, compared to the first quarter of 2022, a 4% increase in home prices has been reported. However, starting in June, experts noticed that the monthly data trends began to slow down.
William Doerner, supervisory economist in FHFA's Research and Statistics Division, said that after prices rose rapidly through most of the second quarter, the pace of growth began to slow in consistency with other recent related data.
Although the data pointed to the highest extreme since last year, experts predict a turnaround in home prices looming in 2023.
Economic research firm Capital Economics stated that the significant increase in mortgage rates in the U.S. will have an impact on the average expense a buyer must cover when purchasing a property.
Mortgage rates soared after the Federal Reserve (Fed) announced an increase in the benchmark interest rate. As a result, now, those planning to invest in residential property must spend more than a quarter of their annual income on mortgage payments alone, Capital Economics showed.
Other factors that may play a role include higher interest rates and high construction costs that exclude many prospective buyers.
As a result, both the construction industry and the real estate industry will see a sharp downturn next year.
In addition, according to the National Association of Home Builders (NAHB), the supply of single-family properties will decrease in 2023 to cope with upward price pressure, as construction was also predicted to experience a decline next year.
Many buyers have backed out and have not invested as they had hoped due to high prices.
While the market appears to be more balanced, analysts believe that the rate of home purchases will fall due to rising interest rates and steadily increasing construction costs, as both factors continue to drive away a substantial portion of property buyers.
NAHB Chief Economist Robert Dietz said this would be the first year since 2011 to see a drop in statistics related to single-family homes.
What happened
to the fixed mortgage interest rate?
According to mortgage market analysis and outlook website Mortgage News Daily, the interest rate on a 30-year fixed mortgage was estimated at 7.29%, making it the highest 30-year rate in the past two decades.
Experts said no one had anticipated a turn of events of that magnitude, as an interest rate of no more than 5% had been predicted.
Zillow, the real estate market firm, maintained the same forecast on home values in October. However, according to its monthly forecast, the national index of the cost per residential property will increase by only 1.3% in the next year, despite having risen by 12.9% from September 2021 to the same period in 2022.
Analysts anticipate that national home prices will drop by 1.4%, but there will be variations in each regional market.
They also
believe home values will fall in 271 of the 896 U.S. regional real estate
markets between September of this year and the same month in 2023.
The company's latest forecasts showed that home prices are expected to fall to the lowest in the following areas:
The Villages, Florida (6.9%)
Punta Gorda, Florida (6%)
Reno, Nevada
(5.57%)
Honolulu,
Hawaii (5.56%)
Spokane, Washington (5.52%)
According to the latest
projections from real estate analysts, a 5% drop is expected by mid-2023
despite earlier predictions suggesting that property values would remain flat
during that period. But prices are not the only thing that could decline, with
the 30-year mortgage rate doubling since January, the volume of mortgage
applications has also hit a more than two-decade low.
