Can house prices fall in 2023, according to expert forecasts?

Last year, the housing prices increased by more than eleven percent, representing the single largest one-year increase since the 2007 Financial Collapse.

In late March, the Federal Reserve of Dallas reported that unprecendented growth in the housing market relates to various factors including “shifts in disposable income, the cost of credit and access to it, supply disruptions, and rising labor and raw construction materials costs.” These factors contribute to what the Federal Reserve refers to as “sustained real house-price gains,” and are not signs of a market bubble.

However, the sudden increases could lead to a bubble because of a growing “belief that today’s robust price increases will continue [and in cases where] many buyers share this belief, purchases arising from a “fear of missing out” [and] can drive up prices and heighten expectations of strong house-price gains.”

To stabalize the market and ensure prices reflect “market fundementals,” the Federal Reserve has announced that they will begin to increase interest rates. Interest rates are used to regulate inflation in the economy. Currently, inflation is increasing and by raising rates, the Fed makes borrowing and accessing credit more costly which slows the movement of money through the economy.

Interest rates hit a decade long high

Within the housing market, increased rates will make taking out a mortgage more expensive. Already there are reports that the increases have priced some potential buyers out of the market. With fewer buyers, and thus lower demand, housing prices may begin to decrease or at a minimum grow at a slower pace.

As of 21 April, the 30-Year Fixed Rate Mortgage Average in the US increased to 5.11 percent, nearly double the average rate offered last year. These new rates have blown through 2022 projections from both the Mortgage Bankers Association and Fannie Mae, who had forecasted rates capping at four and 3.1 percent, respectively.

The Zillow Group has revised its projections, now estimating that the market value will grow by 14.9 percent by March 2023. This comes after the group projected a sixteen percent increase last month, before the Federal Reserve began to increase interest rates. While lower than what was initially predicted, this would still be a significant increase in the value of the market. Continued growth at such unprecedented levels is possible because “inventory levels remain near record lows.” Zillow researchers believe that there is a potential for the inventory to “recover faster than anticipated, which could lower future price and sales volume projections.”

These projections do not show that prices will decrease but rather that prices will increase at slower rates than in 2021.