The last three years have been a whirlwind with the housing market going from scorching hot to icy cold quicker than Harry and Megan could cash in on a deal w/ Netflix! So what does the housing market have in store for the year to come?!?

In 2023, the most important factor to watch will be what happens in the broader economy. (And whether you’re reading this or someone else’s just remember it’s all educated guesses. If we had that crystal ball we’d have been retired and yours truly woudn’t be writing this, but off jet setting somewhere people on IG post about). Will inflation continue to pull back? Will there be a recession or will the Federal Reserve deliver the “soft landing” we all hope for?

These are questions every expert we’ve listed to making their forecasts for next year speaks to. All seem optimistic that, even though there will be an economic downturn, we may manage to avoid a deep recession. And though the full picture may not be rosy, it does mean a much less hectic housing market.

“The last few years [we’ve] ping-ponged between a really aggressive market and a cooling market,” says Taylor Marr, deputy chief economist at Redfin. “With more economic stability, that really could bring more overall balance to the market.”

1. Homes sales likely slide

In 2020 and 2021 was a perfect storm; record low interest rates, double-digit home price increases, trillions in $$ printing, low inventory and bidding wars galore had all asset classes including, but not limited to RE, in a frenzy. This year, skyrocketing mortgage rates, rising monthly payments and loss of buying power has quickly calmed a very heavily weighted sellers market.

The slowdown in sales that began mid 2022 market will continue into next year as buyers contend with comparatively high mortgage rates, low inventory and still high home prices.

According to the experts, sales will remain sluggish heading into the spring buying season before picking up during the latter half of the year. The only question seems to be how large of a decline to expect. Estimates range from 7% year-over-year, according to the NAR, to as much as 16%, according to real estate brokerage Redfin.

The determining factors of just how much sales will fall include what happens with mortgage rates, housing supply and overall economic conditions. For example, if inflation keeps declining and the Federal Reserve eases off rate hikes, some of the homebuyers sitting on the sidelines may jump back into the market and sales may not slide as much.

Other factors like the strength of the job market, wage growth and consumer confidence could also mitigate the sales slowdown.

2. Mortgage rates probably pull back

After increasing to a 20-year high of 7.08% in early November (not 1980s high, but yowzah!), mortgage rates have receded recently — a trend likely to continue in 2023.

High mortgage rates combined with high home prices have made a home purchase much less affordable recently as monthly payments increased by more than 50%. Any improvement in rates is welcome news to buyers.

Experts believe that mortgage rates will likely remain relatively high during the few months of the year but then edge lower and stabilize, with rates falling below 6% by the end of the year. Lawrence Yun, chief economist at NAR, for example, thinks the 30-year mortgage rate will end 2023 at around 5.5%.

“I think the peak has already occurred and we are on a downward path,” said Yun, during the Real Estate Forecast Summit.

But don’t expect rates to fall back to 3% either, he added. The conditions that made those ultra-low rates possible in 2020 and 2021 — a pandemic and unprecedented actions by the Federal Reserve to keep the economy from collapsing — aren’t likely to repeat any time soon.

3. Home prices will level off

While experts are in agreement that mortgage rates are likely to fall, there is a bigger disparity when it comes to home prices. Our experts’ forecasts range from prices falling 4% to a price increase of more than 5%.

The only near certainty is that there won’t be the double-digit price increases that have been the hallmark of the pandemic market.

Both Marr and Olsen see prices falling in 2023. Marr is forecasting a 4% drop in the median home price compared to 2022, while Olsen expects a more modest 0.5% decline. Yun thinks prices will stay flat.

On the other hand, Danielle Hale, chief economist at Realtor.com, believes low inventory will keep home prices from falling too far. She thinks prices will tick higher during the first few months of the year before leveling off or going negative after mid-year, ending the year up by 5.4% overall.

“Even though we’ve seen a pullback in demand, we’ve seen a very similar sized pullback in supply,” says Hale.

4. Inventory stays tight

One of the biggest causes of skyrocketing home prices during the pandemic was a lack of housing supply. We’re already seeing some improvement, but expect inventory will remain below normal levels.

Currently, there is an equivalent of 3.3 months' supply of existing homes available for sale, according to NAR. Inventory is expected to increase by nearly 23% in 2023, but that’s primarily because homes won’t be selling as fast, rather than due to sellers bringing a glut of new listings to the market.

The pace of sales has slowed considerably from the days when most sellers made deals in a week or less. Olsen sees the average time on the market doubling from 11 days in 2022 to 22 days next year, which will allow the housing supply to build up.

Buyers and sellers could return as 2023 progresses, especially if mortgage rates move lower. As borrowing conditions ease, more buyers will come back to the market, which should lure sellers back as well, but those who bought and/or refinanced to the historically low rates won’t be tempted to list unless needed during this time.

5. There will be more variability between markets

“Hot” was the most common word used to describe the majority of real estate markets as recently as the first half of 2022. That will no longer be the case going into 2023, as different metros will start to see differences in demand.

“For the last couple of years we could have talked about all housing markets across the country basically using the same language,” said Lisa Sturtevant, chief economist at listing site Bright MLS, speaking at the National Association of Realtors Real Estate Forecast Summit in December. “In 2023, though, there’s going to be a lot of variability in how these markets are adjusting.”

The “Zoom towns” — cities that attracted a large number of pandemic buyers who had shifted to remote work and were looking for more affordable housing — are the metros most likely to see home prices fall significantly, a trend that has already started this year, according to Sturtevant.

However, there will be markets, particularly in the South and Midwest, that remain very much in demand and could see home prices increasing throughout the year. Hello sunny Charleston!