Logic suggests that the 2023 housing forecast is neither terribly bad nor exceptionally rosy. Industry analysts don’t expect a crash, but most don’t expect prices to continue climbing at the same rapid rate as they have in the past few years.
Repeated interest rate hikes from the Federal Reserve will continue to slow the speed at which home values rise and increase the number of days they sit on the market.
However, despite rumblings from some economists that a recession could occur in 2023, very few market analysts predict a total collapse of the housing market or a drastic reduction in home values.
Rather, market watchers believe that the rate at which housing prices have increased over the past few years will slow down but that prices won’t drop significantly either.
How 2022 Homebuying Activity May Impact 2023
One of the most significant changes the market may experience is the slowing or outright halt of housing price inflation. Record low housing inventory during the pandemic and near-zero percent interest rates created a perfect storm of short supply and drastic price increases.
According to figures reported by Southern California’s KTLA television station, home price appreciation in Los Angeles reached 15 percent between June 2021 and June 2022. However, home sales haven’t been as swift in the summer of 2022 due to the repeated interest rate increases from the Fed.
As reported by Spectrum News, home sales in Los Angeles fell by 32 percent in July 2022 versus July 2021. Orange County home sales saw a 38 percent drop during that same timeframe, and Riverside sales were down 32 percent.
For many prospective homebuyers, the unrelenting housing price increases were untenable when paired with the year’s volatile mortgage rates. Although the Federal Reserve’s interest rate changes aren’t directly responsible for the higher mortgage interest rates, the changes do have an impact.
The Federal Reserve has given no signal it will drop interest rates in the last few months of 2022 or the first half of 2023. Therefore, it’s reasonable to expect that sellers and buyers won’t see a dramatic turnaround in home prices in 2022. Only a return to record-low interest rates would cause prices to rise rapidly again due to the natural increase in homebuying activity that would follow an interest rate reduction.
Expect Housing Inflation to Slow to a Crawl in 2022
A recent article published by Reuters suggests that nationwide, housing prices may only rise by two percent in 2023. That’s a dramatic slowdown from the double-digit increases seen throughout Southern California from 2020 to 2022.
However, prospective homebuyers shouldn’t expect a massive fall in prices in 2023. If anything, prices will continue to rise in Southern California, but the rate won’t break any records. Buyers shouldn’t expect a huge market correction that sees home prices drop to pre-pandemic levels.
In fact, some analysts surveyed by Reuters felt that some overvalued properties wouldn’t reach a point of fair market value for several years, if ever. So, given what the analysts are saying about the market in 2023, where does that leave Southern California homebuyers?
2023 Will Remain a Seller’s Market
The silver lining for future homebuyers in 2023 is that home prices will likely stop their meteoric rise and level out for the foreseeable future. However, limited price increases will continue throughout Southern California, according to most estimates.
SoCal is in a league of its own regarding market fluctuations and home sales. What happens in 2023 in Wichita or Miami might not look the same as the buying activity in California. Should Californians buy a home in 2023 despite the interest rate hikes?
Whether making a purchase in the last few months of 2022 or waiting until 2023, homebuyers shouldn’t rest on their laurels until better rates and prices come around. Most analysts, real estate soothsayers, and economists agree that housing costs won’t take a dramatic tumble this year or the next.
Despite higher mortgage costs, purchasing a home in Southern California remains a good investment and will likely remain so throughout the next 18 months.
If you or anyone you know has questions about financing or the current housing market, your expert Los Angeles mortgage brokers at Peak Finance are here to help. Contact us today at [email protected].