2023 Housing Market Predictions 

As we begin Q4 of 2022, rising interest rates, low housing supply, and fear of a real estate crash have many buyers and sellers trying to predict what they should do as we end 2022 and move into 2023. Below, we’ll break down what you can expect for 2023 when buying or selling a home in Huntsville, AL.

2022 & 2023 Housing Price Appreciation

The housing market is beginning to shift which has all the major forecasters now updating their predictions for the remainder of 2022 and heading into 2023. Seven of the major forecasters are predicting an average of 11.3% appreciation for 2022, predictions range from 9.3% all the way up to 16% for the 2022 market, which is still an above-average appreciation for real estate.

Heading into 2023, the major economists are predicting more healthy and normal appreciation levels with an average of 2.2%. Anywhere between 2% to 5% is considered healthy and a normal appreciation range. Of those economists only one is predicting negative appreciation right now for 2023, Ivy Zelman, she's even coming in at modest levels of -4%.

Nationally, 71% of metro areas are predicted to have price appreciation in 2023 with only 29% of metros declining. According to Zillow's research that just came out, even those metros that are predicted to decline are only expected to see slight, modest declines of 1% to 3%.

Why There Won’t be a Real Estate Crash in 2023

According to Bill McBride, author of the Calculated Risk economics blog, prices are unlikely to crash for three reasons:

1) Solid Underwriting

We've had one real estate crash in the last 100 years, that was more of a financial crash and that was due to poor underwriting. Anybody that could fog up a mirror could get a loan back in 2008. That's not the case right now. We have solid underwriting practices and solid borrowers that are taking on loans. 


2) Housing Prices Tend to be Sticky-Down

Housing prices tend to be sticky downward unless there are forced sales. That means, if prices were to decline slightly, there are likely more buyers that are going to jump into the market which will prevent housing prices from crashing. The housing market is only likely to crash if there are forced sales, there are unlikely to be forced sales because there's so much equity in the market right now. 


3) Historically Low Inventory

Housing inventory is still historically low. We have a 5.5 million home deficit in this country but instead of low supply leading to more bidding wars, higher interest rates are pushing down demand since more would-be-buyers are unable to afford new homes. High-interest rates are also pushing down supply because there are fewer sellers that want to sell in this market since they may have an interest rate in the 2% to 3% range, they are unlikely to sell their home when interest rates are starting in the 7% range right now. There are fewer sellers, but there are also fewer buyers which is averaging out that inventory at the moment.

Low Loan-to-Value Ratio & Record High Equity

Another reason why we probably won't have a real estate crash any time soon is due to a very low loan-to-value ratio. The loan-to-value ratio looks at the amount of money borrowed versus the value of the property. The current national loan-to-value ratio is at 29.5%, which is the lowest it's been in almost 40 years dating back to 1983. Typically when you have real estate crashes you have very high loan-to-value ratios, that's just not the case this time. 

On top of a low loan-to-value, we’re experiencing record-high equity. US households own $41 trillion in owner-occupied real estate, just over $12 trillion in debt, and the remaining $29 trillion in equity. The average homeowner equity in this nation is $320,000 so there's a lot of room for prices to potentially go down before sellers would actually have to be forced to sell. That's very unlikely with homeowners having locked in low-interest rates and having high equity positions.

2023 Huntsville Housing Market Predictions

Locally in the Huntsville housing market, what I think we're going to see over the next 12 months into 2023 is more normal appreciation levels. I think we're going to see anywhere between 3% to 5%.

We’ll also likely see fewer sales, I’m predicting a 20% or so decline in the sales volume. As more buyers are pushed out of the market with higher interest rates, we're also going to have fewer sellers. Those two things are likely going to cancel out and cause just normal appreciation rates in the Huntsville market in 2023.

Since pricing is a supply and demand equation, a lot of homeowners having interest rates in the 2% to 3% range means they’re less likely to sell their homes with rates in the 7% range which will continue to push down supply. Another effect of the high-interest rates is it’s making builders more cautious about bringing and building new supply into the economy and that's likely to push up the 5.5 million home deficit that we already have.

However, after 2023 and when interest rates begin to lower again, whether that be in 2024 or beyond, we're likely going to see the exact same challenge that we've had over the last couple of years because we will still have that supply imbalance. Builders are not keeping up with demographics in building enough homes and so as interest rates decrease, that demand is going to still be there and we will likely see above-elevated appreciation rates in the near future as well.


Posted by Matt Curtis on
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