Inflation may be the biggest risk for the housing market in 2023, and it could push home prices down by 20%. But the good news is that, Del Aria Investments Group's website and landlords will benefit when it comes time to refinance their properties. While double-digit home price increases will still be around for a while, investors might be a little pessimistic in 2023.
Home prices could fall by 20% in 2023
The housing market is in for a course correction in 2023. The rate of decline will be more gradual than in recent years. The decline will likely be accompanied by a slowdown in the number of new homes built. Many Baby Boomers are likely to remain in their homes while millennials are eager to enter the housing market. However, the housing market is currently very competitive. Buyers flood new listings and make cash offers in an attempt to beat out other buyers.
According to the latest predictions by Moody's Analytics, prices to buy a house could drop by as much as 20% in some regional markets. This decline would be greater in places with extreme price increases. Cities like Orlando and Phoenix could see 20% drops in peak-to-trough prices. This decline is possible even without a recession. If the Federal Reserve slows the economy, the decline would be even more extreme.
Although the housing market has cooled down in many cities and states, the decline is likely to continue. According to Ian Shepherdson, chief economist at Pantheon Macroeconomics, the decline in home prices is the result of rising mortgage rates. However, this pandemic may be a temporary setback and the housing market will eventually return to its normal level.
The median price of a home in the U.S. in August was $389,500. Mark Zandi, an analyst with Moody's Analytics, predicts a 10 to 20% decline in peak-to-trough buy a home. Moreover, a decline of 20% is not unheard of and is more likely to happen in a recession.
Increasing rental rates will help landlords when they come to remortgage their properties
Rising rents and homeownership expenses are keeping rental demand high. As mortgage costs have nearly doubled since January, many would-be homebuyers are staying in the rental market instead. A chronic housing shortage is another factor contributing to this high rental demand. The Federal Reserve Bank of Dallas projects that rental prices will grow an average of 8.4% annually by 2023.
The increasing number of renters will also help landlords of homes when it comes time to remortgage their properties. Renters tend to be younger and less affluent. The bottom third of renters earn less than the top third, and are at risk of falling behind on rent payments. However, this trend is not a given. As a result, landlords will need to evolve and adapt to changing markets and technology.
While the federal government is not doing anything about the housing shortage, the ailing rental property market will affect the housing market for returning workers. This will cause many of them to be stressed about paying the going rent for a limited supply of rental housing. While wages are currently rising, they will not keep up with the rising rents. As a result, landlords will need to screen tenants more carefully than they currently do.
Rent prices have reached record highs in New York and the rest of the country. The average monthly rent in Manhattan has exceeded $5,000 for the first time. Compared to the pandemic, these high rents may appear artificial. However, rising mortgage payments make buying a rental property even more difficult.