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Sneak Peek to 2023: What Will This Year Look Like for Real Estate?
Industry News

Sneak Peek to 2023: What Will This Year Look Like for Real Estate?

Mariah McQueen

What a difference a year makes for our industry. This time last year, we were coming off a refinancing frenzy and adjusting to a completely different market. Now that we are officially a month into 2023, we have already seen some inching back to normalcy, which gives us hope for what is to come for interest rates and inventory. While we haven’t seen significant improvements yet, we are celebrating the small wins. According to Bankrate, the average rate on 30-year mortgages ticked down to 6.42 percent this week from 6.43 percent the previous week.

We’ve probably learned by now to expect the unexpected when it comes to the real estate market, and forecasting the year ahead can feel like throwing darts in the dark. Lucky for us, we are a data-driven industry which helps us understand what to expect for the upcoming year.

Recession on the Mind

It’s expected to be a challenging year for both buyers and sellers, and several experts believe the economy is headed for a recession. A recent poll of economists from the Wall Street Journal pegged the recession chances in 2023 at 61%. While the whispers of a recession may be alarming to some, especially Gen Z homebuyers who have yet to experience a recession as an adult, many experts believe it will be light compared to past periods of economic difficulty.

The silver lining here is that this year will be important in setting the stage for the housing market to return to a sustainable place over the next two to three years. That means the housing market could rebound in 2024, even if the rest of the economy doesn’t appear to be doing the same.

Mortgage Rates: The New Normal

Most conversations on today’s real estate market surround mortgage rates, as it dominated last year’s market. Optimistic forecasts predict that mortgage rates are to stabilize at 5% or 6% as the ‘new normal’. In its latest forecast, the Mortgage Bankers Association predicted that average 30-year fixed mortgage rates will reach 5.2%   by the end of the year. 

Over 85% of homeowners are paying mortgage rates below 5%, so most people have delayed moving until rates retreat below 5% or prices adjust accordingly. While it’s impossible to predict where rates will be as the year progresses, experts say buyers shouldn’t wait around for mortgage rates to drop to where they were in 2020 and 2021 because, chances are, they won’t.

Refinances

Until the rates show consistent stabilization, we will see a continuing decline in rate-based refinance activity for the vast majority of current mortgage holders, which is expected to continue to constrain mortgage origination activity. If the economists are correct that we will see slight stabilization this year, we may see an uptick in refinancing but nowhere near 2021 levels.

Where is Everyone Moving To?

Changes in Buyers in Major Tech Hubs

Recent tech layoffs have raised the question of what these layoffs will mean for the major tech metro areas. Nearly 137,000 workers were let go from about 850 tech companies and startups last year. Anytime there are layoffs, that’s a reduction in the number of buyers in a given market. According to Realtor.com, some other tech hot spots such as Seattle, Sacramento, Denver, Austin, Raleigh, and Salt Lake City, are also feeling pressure from sector-related layoffs.

Other factors like rising inflation and affordability will drive the migration of people to new metropolitan areas, with buyers taking economic performance and home price performance into consideration. Recent data points to market prosperity in the Midwest, the South, and select regions in Pennsylvania. This year, we looked at multiple sources for their rankings of the most appealing homebuyer markets and compiled the following list:

  • Charlotte, NC
  • Raleigh, NC
  • Cleveland, OH 
  • Pittsburgh, PA
  • Dallas, TX
  • Nashville, TN
  • Knoxville, TN
  • Jacksonville, FL
  • Miami, FL
  • Kansas City, MO
  • Atlanta, GA
  • Philadelphia, PA

 

While uniquely different, they have one major thing in common – they offer all the amenities at a fraction of the price of other major Metropolitan cities.

Cleveland, for example, has made a prime spot on many annual predictions for the hottest markets this year, coinciding with a lower barrier of entry related to cost. Downtown Cleveland has experienced a 76 percent increase in residents aged 25-34 since 2000.

 

Climate Change As A Motivator To Move 

2022 had some pretty horrific natural disasters, and homebuyers are more motivated than ever to move away from areas that are prone to hurricanes and wildfires. 30% of Americans cite Climate Change as a motivator to move this year. After Hurricane Ian, Floridians especially are looking to move out of high-risk flood zones, and residents in the northwest states are also moving away from areas prone to wildfires or extreme temperatures.

Read moreWhat Every Homeowner Should Know Before the Next Natural Disaster

 

Will 2023 Continue As A Seller’s Market?

Buyer and seller expectations are starting to come together again as a result of the sharp rise in mortgage rates. Home sales have fallen for 10 consecutive months, the National Association of Realtors said in December.

While listings have increased in recent weeks, the active inventory is down 38% compared to 2017-2019 levels. Home prices are expected to look more optimistic but don’t expect 2010 prices.

Shrinking House and Apartment Sales

Renters are expected to reclaim more market power in 2023 as historically high levels of new apartments now under construction are completed. A supply glut for short-term rentals will force some owners in oversaturated markets to convert their listings to long-term rentals, adding more supply for traditional renters.

New Home Surplus

Homebuilders are expected to slow down this year, specifically on new single-family homes. 

An estimated 470,000 unsold new homes under all-states of construction – up 21% year over year and the largest inventory seen since March 2008 at the start of the housing bubble implosion

 

Foreclosures

During a recession, foreclosure rates tend to increase. Once foreclosure moratoriums and other COVID-19 related foreclosure protection expired in 2021, foreclosure rates started to increase in 2022 and are expected to continue into 2023.

Luckily, the levels of foreclosures seen in 2010 are unlikely to be repeated this year, with a combination of high equity, stimulus-related savings, and relatively low unemployment providing much-needed support in 2023.

As of late 2022, states with the highest foreclosure rates:

  • Illinois (one in every 1,779 homes)
  • Delaware (one in every 2,178 homes)
  • New Jersey (one in every 2,305 homes)
  • South Carolina (one in every 2,711 homes)
  • Nevada (one in every 2,755 homes)

 

Upcoming Regulatory Efforts

Experts predict less legislation and more regulation this year as newly elected officials enter this year’s legislative session. Polls have closed for the 2022 general election, where voters in 46 states decided on 6,279 state legislative races, 36 governors, and 133 statewide ballot measures. The upcoming federal and state legislative sessions this year will be critical to relieve the burdens of today’s market conditions, especially as the federal level faces two years of divided government. 

Representative Patrick McHenry is set to take the gavel as the new chair of the House Financial Services Committee, and Senator Sherrod Brown will remain chair of the Senate Banking, Housing, and Urban Affairs Committee. Increased legislative focus include:

  • Cyber Security 
  • Remote Notarization Legislation 
  • Private transfer fees
  • CFPB’s scrutiny of junk fees
  • Changes for the Appraisal Profession –
  • Efforts to protect homeowners from deed theft – Good DEED Act

 

Preparing for the Year Ahead in Title

There are a lot of moving parts in today’s market but rest assured, market ups and downs are all a regular motion of a healthy economy. Having an optimistic view of what 2023 has in store for the industry and staying focused on objectives will be key to preparing for what is to come this year. Whatever 2023 brings, we will continue to provide you with content on everything you need to know.

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This content is provided for informational purposes only. PropLogix, LLC (PLX) is not a law firm; this content is not intended as legal advice and may not be relied upon as such. PLX makes no representations as to the accuracy, reliability, or completeness of this content. PLX may reference or incorporate information from third-party sources, upon which a citation or a website URL shall be provided for such source. PLX does not endorse any third party or its products or services. Any comments referencing or responding to this content may be removed in the sole discretion of PLX.

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Mariah McQueen Marketing Generalist

Mariah McQueen is a Marketing Generalist at PropLogix who is passionate about protecting homebuyers and enjoys writing about subjects valuable to the title industry. She currently lives in Orlando and enjoys practicing Jiu-Jitsu, traveling, and playing the piano.