2022 Summary: The word whiplash comes to mind when I think about how abruptly the market changed in May, when it became apparent interest rates were going to be used by the government as a tool to slow down inflation. This affected mortgage rates and caused them to soar to over 7% for the first time since 2002. With COVID in the rear-view mirror, the housing market had continued its escalation in the first part of 2022. In late spring came the reality that increasing interest rates were a new normal. This caused many buyers to pause and sellers to race to get their homes on the market before the market slowed down too much.
2023 Predictions: In 2023, many markets will stabilize after three years of unsustainable price growth. While the last three years were certainly exciting in terms of supply and demand mechanics, this excitement also created a new host of problems including inventory shortages and housing unaffordability. The market will return to a slower, more-controlled pace as sales numbers decline due to the lack of inventory. Here is what we may expect in 2023.
Housing Inventory – The housing industry saw a record-setting inventory crisis in 2021, then saw inventory flying off the shelves in 2022. Inventory will continue to be a major struggle in many markets in 2023. Builders will continue to struggle to get product to the market due to supply chain issues while home sellers will resist putting their homes on the market because they can’t take their low-rate mortgages with them. Lack of inventory in some areas will keep home prices from declining nationally and in specific areas, prices will continue to increase. With inventory tight in many regions, the housing market cannot repeat what happened in 2008; the housing fundamentals were dramatically different with a surplus of inventory and a struggling economy, whereas now the inventory situation is flipped.
Home Price Growth – Home prices will fluctuate from region to region. Continued buyer demand and a challenged housing inventory market will result in the national median sales price growing from somewhere between 5.2 – 6.1% in 2023. The only reason we will not see a higher number is due to affordability pressure. Louisville is poised to see strong combined growth in home sales and listing prices in the coming year, giving it a No. 3 ranking on the Realtor.com® 2023 Top housing markets forecast.
Projections for Louisville:
Forecasted 2023 home sales change: +5.2%
Forecasted 2023 home price change: +8.4%
At a time when housing costs are a concern for many, Louisville offers relative affordability, having experienced less of a price surge than other extremely hot, pandemic-era markets. Louisville also has a greater share of homeowners who own their homes, without a mortgage, giving more residents equity to build on.
Interest Rates – Mortgage rates are ranging anywhere from 6.9 – 7.5% (credit score dependent) for a 30-year fixed rate mortgage. That is a dramatic increase from the historic low level of 2.68% in December 2020. The increase in rates is making the housing affordability problem worse with many buyers priced out of the market, however, they remain eager to buy and we will most likely see a surge of Millennials entering the market in the years to come. Look for interest rates to soften by mid-2023 with rates declining to the mid 6’s. 2023 could end at just over 6% or in the mid 5’s if inflation continues to decline.
In summary, the year 2023 will be a year for our market to return to a healthier and more sustainable housing market. Buying power will continue to decline, interest rates will remain elevated, and home prices will grow, but slowly.
