With 2023 right around the corner, real estate agents, homebuyers, and investors are all wondering what next year will hold for real estate. Since the outbreak of the pandemic, the US residential market has undergone major changes including higher property prices, historically low inventory, a strong shift towards a seller’s market, further technological advancements, and (most recently) skyrocketing mortgage rates. Amid this disruption, it’s only natural that all stakeholders in the real estate industry are eager to know where 2023 will take us next.
Based on the current state of the market and expert predictions, here are the five most prominent US housing market trends for 2023.
Housing Price Spikes Are Ending
The #1 question on the minds of homeowners—especially first-time homebuyers—is whether the unbelievable increases in home values that we saw in the last few years will continue. Since January 2020, the median home value in the US market went up by nearly 43%, significantly exceeding the normal real estate appreciation rate. This pushed many first-time buyers out of the market, as they generally face more limited financing options than homeowners and real estate investors.
The good news is that experts believe this will come to an end in 2023. While the conditions are not right to expect a drop in residential property prices, the growth is forecasted to slow down significantly.
Zillow expects home prices to grow by only 1.3% in the next 12 months, as of the end of September 2022, in comparison to a growth of 12.9% in the preceding 12 months. This means that many new homebuyers will be able to reenter the market and stand much better chances to buy a home in 2023. It is also a positive trend for agents who can expect demand from this segment to grow.
Mortgage Rates Will Drop
Mortgage interest rates were much slower to skyrocket than home prices, only beginning to move upward toward the end of December 2021 and the beginning of January 2022. In October-November 2022, the 30-year fixed-mortgage rate reached 7.08%, its highest level since April 2002. This put additional pressure on homebuyers with limited alternative options for financing the purchase of a home.
However, this trend is already somewhat reversing. At the moment, the 30-year FRM stands at 6.61%. One of the most important 2023 US housing market trends for homebuyers is the expected further decline in mortgage rates. The Mortgage Bankers Association forecasts that the mortgage rate will be 5.4% at the end of 2023. While this is still notably more than the interest rates we got used to seeing in the last few years, it is definitely less than what we experienced in the past few months.
Both trends discussed above are pointing toward a shift to a neutral real estate market in 2023, with even the potential for a buyer’s market in certain locations. Once again, this move away from a hot seller’s market all over the US is a positive trend for both homebuyers and the real estate agents that they will work with.
Millennials Will Push Housing Demands
Another major housing market trend expected for 2023 is increased demand from millennials. According to a Realtor report, millennials now represent the largest homebuyer segment in the US market, in terms of generation. Their share is currently 43% of homebuyers, compared to 37% a year ago. This is a major change from the years before the pandemic, when millennials were generally refraining from buying a home.
Millennials’ hesitance to become homeowners is over, as demonstrated by the recent increase in their home buying activities. Moreover, as more and more millennials are maturing and entering the age to marry and start a family, their interest in homeownership is expected to continue rising. Demand from millennials is one of the factors that will prevent the property values from dipping and keep the market from turning into a buyer’s market.
While 81% of younger millennials are buying a home for the first time, this number is only 48% for older millennials. This means that many of them are already selling their first homes and upgrading to bigger ones.
In other words, we can expect this generation to be the main driving force behind the US housing market in 2023 and beyond—both as buyers and sellers. Importantly, according to the Realtor report, 92% of younger millennials and 88% of older millennials worked with a real estate agent to buy a home. This means there will be significant opportunities for agents to help millennials become homeowners in 2023.
Rental Rates Will Increase Faster Than Property Values
As home values and mortgage rates remain generally high (at least above the levels we have seen in the past couple of years), many are forced into renting rather than buying a home and they want to know what they can expect in the US rental market. The national median rent rose by 17.6% in 2021, while rent has gone up by 5.9% in 2022 so far. This upward trend is putting further pressure on the most vulnerable groups in the real estate market—those who cannot afford homeownership and resort to renting.
The Federal Reserve Bank of Dallas used data from the federal government’s consumer price index to forecast an annual increase in rental rates of 8.4% between June 2022 and May 2023. This means that rent growth will once again accelerate and will actually exceed the rise in residential property prices, on average.
This is yet another major US housing market trend, as it might push more away from renting and towards homeownership—as long as they are able to find affordable properties for sale and favorable mortgage terms. This trend will be especially pronounced in markets with low price-to-rent ratios, signifying that owning a home makes more sense financially than renting.
The Role of Technology Will Continue to Grow
Finally, technology will continue to play a larger role in the real estate industry. The boom in the proptech industry started well before the pandemic, but Covid-19 certainly accelerated the adoption of technology in every aspect of real estate.
While we are all hoping that the pandemic will be officially over soon, this doesn’t mean the end of growth in real estate technology. On the contrary, after experiencing the potential benefits of automation in real estate, we can expect a further push in this regard. This includes CRM platforms for agents and brokers, AI-based support tools for homeowners, dashboards for property managers, and enhanced technology-based communication options for everyone.
Here at Landslo, we are giving our fair share of contributions to the automation of the real estate industry and improving working relationships between different stakeholders. We provide homebuyers with access to tailored listings, market insights, and guidance throughout the home buying and selling journey and work to match them with the right agent. Meanwhile, we offer real estate agents and brokers an AI-based personal assistant who keeps in touch with old contacts, engages with new leads, sends customized listings to buyers, and sets appointments.
The State of The Market in 2023
Overall, the 2023 US housing market trends are expected to bring advantages for both homebuyers and real estate agents. With home value growths and mortgage rates slowing down and rental rates going up, 2023 promises to be a good time to buy a home. Still, even if the market normalizes after a few disruptive years, you can never go wrong with some extra help. Click here to sign up for Landslo for free and see how our bot can help you in your real estate journey.