Rattled housing market prompts reversal on 2023 forecasts with home prices and rents now expected to fall

• Realtor.com has re-examined its prior housing predictions, and now expects a dip in prices and rents.
• But downgrading the 2023 outlook does not signal a major wave of relief.

Realtor.com has re-examined its previous housing market predictions for this year and pointed them in the opposite direction.

The real-estate company now expects average home list prices to drop 0.6% from last year, compared to its prior prediction of a 5.4% year-over-year rise in 2023.

Similarly, Realtor.com now predicts a 0.9% dip in rents this year, given a growing supply of rental properties, reversing its earlier forecast for a 6.3% rise.

To be sure, its initial outlook largely went against the grain of what other analysts were saying would happen, and Chief Economist Danielle Hale seemed to acknowledge that.

"We made a bold call that home prices wouldn't go down in 2023, and with the latest data, we're revising that projection," she said in the report.

The initial 2023 forecast, which came out in November, was based on the market's imbalance between demand and supply, and skepticism that homeowners would lower their asking price, given the high values properties were selling for. That's as 2022 saw a 10.2% jump in home prices.

However, prices did fall this year, particularly in the most expensive regions, like the West, as buyers balked at high prices and mortgage rates, Realtor.com said.

But downgrading the 2023 outlook does not signal a major wave of relief.

"Home costs are still going to be higher for buyers in 2023 because home price declines are very mild and not universal," Hale said. "Some areas are still seeing home prices going up and mortgage rates are still very high."

Earlier in the year, West Coast cities saw prices plunge as much as 10%, in part as tech layoffs diminished demand. But elsewhere, the Midwest and Northeast saw price gains.

Rental Market

More apartments are coming to the market, easing rental shortages, Realtor.com said. For instance, completed multifamily construction projects expanded 24% year over year in April, according to separate data from Redfin recently.

And as homeowners are largely unwilling to refinance their mortgages, they're more inclined to rent out their properties, adding to tenant options.

"Asking rents are expected to fall. [But] whether any particular tenant is going to find rents are lower depends on when they last moved," Hale said. "Renters who stayed put and didn't contend with the higher rents of the last few years might find their rent has some catch-up to do."

Realtor.com downgraded other 2023 predictions as well:

• Instead of housing inventory jumping 22.8% this year, it now sees a 5% drop.
• Home sales are now expected to fall 15.8% to 4.2 million units, the lowest since 2012 and down from an early prediction for a 14.1% decline.
• And mortgage rates are seen slipping to 6.1% by year's end versus the prior view for 7.1%.

While the Federal Reserve has indicated more monetary tightening is coming, mortgage rates should retreat when that cycle is done.

"It means affordability will start to improve, but not drastically," said Hale.