Redfin’s bold housing forecast 2023
Here is a direct quote from the Redfin’s annual Housing Market Outlook. It says, “We expect home sales to sink to the lowest level in more than a decade in 2023, as high mortgage rates keep housing costs up and prevent people from moving.” No surprise, as the rates have gone up, inflation is high. So let’s look at other predictions from Redfin.
You might have noticed that starting of spring 2022, rates kept going up. They went from 4% range to now almost 7% range. Inflation went higher and higher. It was at 6%, and now it was close to 8%. Interest rates went very high, home prices went very high, and all of a sudden homes started taking longer and longer to sell and the prices were stabilized and the multiple offers were not as many as they used to have. They used to have 10, 20, 30 multiple offers and then it trickled down to two or three multiple offers.
So the housing has slowed down, and we are analyzing what has happened over the next year, over the last year, and what’s going to happen in the coming year of 2023. It’s a challenging year for housing market. Also, inflation is still staying high, gas prices are staying high. And the other thing is the stock markets have taken a tumble and the prediction is they may stay low also. So there’s a lot of stuff happening in this market.
Prediction 1: The first prediction they’re making is that the home sales will fall year over year. In 2021. There were 6 million homes sold. In 2022, the prediction is about $4.8 million from NAR, National Association of Realtors. And now Redfin is predicting that home sales may reach only 4.3 million per year in 2023, which is significantly low from 2021. And they predict 16% lower homes in 2023 from 2022. And it’s very obvious the reason there’s going to be lower sales. Obviously there is a shortage of inventory. But more than that, the rates have gone up, which has increased the affordability index. A lot of people cannot afford homes anymore just because the interest rates went up. Inventory is rising as a lot of the seller who wanted to move are not moving anymore, because they are saying, why should I sell my 4% home that I have and buy something for 7%? So that’s lowering the inventory on the market, which gives less choices for the buyers. And the buyers are just saying that, hey, prices have gone up for so long, since 2011. They’ve gone up and up and up and up and up. Interest rates have gone up, inflation is up. So they’re just hitting the brakes on buying homes. That’s why we’ll see a lot less homes for sale in 2023.
Prediction 2: Home sales is all about the mortgage rates. A lot of the consumers, when they buy a home, has to do with the interest rate. The higher the interest rate, the lower the sales. But the good news is we went as high as 7.5% interest rate a few months back. But what Redfin is predicting is that by the end of the year it should drop to 6% or lower. Which is good news for the consumers because even a percentage of mortgage interest rate drop or a percentage and a half makes a big difference not only on their home affordability or the qualification, but also reduces their payments significantly. Good news is they are predicting and overall, they are predicting that the rates will go down overall in 2023 which should pick up home sales. I did a video a few weeks back saying that the mortgage rates will come down sooner than expected. The link is right here and we will also put the link in the description. So feel free to watch it after you finish watching this video.
Prediction 3: The third prediction is that home prices will finally fall in 2023. Since 2011, they’ve gone up and up and up, as I mentioned earlier. But for the first time, it will have a drop. And the drop, they don’t expect a significant drop. I know a lot of the buyers, a lot of the investors, a lot of the sellers expected a higher price drop. In fact, they were saying that housing market was going to crash at the end of 2022, but it has not. In fact, in 2022, the overall price of all the homes on average has gone up. But they expect a drop in 2023 for the first time, like I said, in about ten years. And they don’t expect a wave of foreclosures. One of the reasons for that is that there’s still a shortage of homes for sale. So even though the prices have dropped, it’s taking longer to sell homes. So the inventory is going up, but overall there is a shortage of homes. Add to that, there is a lot of equity in the homes. In the last four, five, six years, the prices have gone up significantly by 20%, 30%, 40, 50%, maybe even double home values in the last ten years in certain areas. So there’s a lot of equity. Despite the home sales drop, despite the higher interest rate and the higher inflation, they don’t expect a wave of foreclosures, which is tied to the number of homes for sale or number of homes that’ll sell.
Prediction 4: The fourth prediction is that in the Northwest and the Midwest, the home price drop will not be as significant as in other areas. I’m in Orange County, California, in the western states and the Western coast. Prices really jumped very high in the last four or five years. Similarly, in the East Coast, New York, Florida, all those areas, prices really jumped during the pandemic and there was a really high shortage. So the prices really jumped high, but the prices did not jump as much as in the Midwest and the Northeast. So the prices will not drop significantly, and the market will be most stable in those areas.
Prediction 5: Housing prediction five by Redfin what they’re saying is next year the rental rates will finally come down, and due to that, the Gen ZS will keep renting. Gen ZS have been outpaced from the market, they cannot afford on average. So with the rentals going down, they will keep renting for quite a while before they buy anytime sooner. As the home prices went up, the rental rates went up significantly. On average, in the last four to five years, rates have gone up from three to 4%, depending on the area annually. As fast as the rates went up on homes, the rental rates went up as well, which put out a lot of the buyers that could not afford even rentals. And there was a huge shortage, so they could not even find rentals. But now that things are slowing down, there will be more rentals available.
Prediction 6: The other prediction is that as we approach 2023, they are predicting that the builders will pull back on building newer homes. In fact, permits are down 25% year over year, and the builders, new home builders already have a huge inventory of homes. Before they start building newer homes, they want to offload their existing homes. In fact, as an agent, I get emails from new builders here locally in Orange County giving us 3% commission, which they never did before. Now that the home sales are slow, they’re calling us, texting us, emailing us to sell their homes, and offering us 3% commissions, which tells us that builders overall are desperate to sell their homes, desperate to get rid of their existing inventory. So as they slow down on new home building of single family homes, they will add more rental units, multi family units, and other compact neighborhoods, as those are in more demand as the demand for single family homes eases up.
Prediction 7: The 7th prediction is that the investors will pull back almost up to 25% in buying rental homes or rental units. As you know, investors look for cash flow if they want to buy low and sell high. With the interest rate so high and the home price is so high, they’re pulling back as well. But what they’re saying is during spring they’ll bottom out as far as purchasing. But as the inflation reduces over the years, hopefully by summer or fall as the inflation comes down, as the interest rates come down, investors will find it more affordable and profitable to buy rental homes and investment properties. So they’ll come back and buy towards fall in 2023. It will slow down significantly in spring. Add to that all the ibuyers, Zillow used to buy homes, Redfin buys homes, Opendoor buys homes, they’ve pulled back significantly as well. So overall, the investor purchases in 2023 will be a lot less than the last few years.
Prediction 8: Gen Zers will seek to move to areas that are more affordable in mid tier cities. As there are more remote works coming along, gen Zers can move wherever they want to, so they will seek for areas that are more affordable away from the metros, away from the families. But that will be the new pattern for Gen Zers. Also,The other pattern has been that almost one third of Gen Zers in the workforce live with their parents or relatives or friends and share rooms. But that will change and they’ll be migrating or moving to less affordable areas compared to the metro areas.
Prediction 9: Migration from one part of the country to another part of the country will ease from the pandemic boom as less and less companies are offering remote working. And let me read a quote. “In 2023, slow market, there won’t be a next Austin. Even Austin isn’t Austin anymore. The wave of homebuyers moving into Austin has slowed to a trickle as many people are now priced out and many remote workers who wanted to relocate have already done so.” So as you can see, the change in the housing market will change the housing patterns and the moving around from one place to another will be reduced significantly. And they expect a 20% reduction in people moving from one area to another area.
Prediction 10: Prediction number ten, which is off the cuff, and I’ll read the prediction number ten. “Rising disaster insurance cost will make extremely climate risky homes even more expensive.” For example, what happened in Florida a few months ago, such a disaster and we feel sorry for them. I’m in Anaheim Hills in Orange County, in a hilly area, high wind area, so our insurance went up significantly when they had two or three fires. So a lot of the people may not be able to move into certain areas because of high insurance rate which have gone up, predicted to go up more and more.
So hopefully these help.