Home prices are set to tumble in the 2nd half of 2023 as mortgage rates rebound and the economy slows, economists say

Home prices have been holding firm through most of 2023, but high mortgage rates and a weakening economy could send them lower through the rest of this year, according to researchers at Capital Economics.

In a June 9 report, economists forecasted that waning demand means home prices look poised to fall in the second half of 2023.

While Case-Shiller data showed home prices climbed in both February and March, that was preceded by seven consecutive months of declines. The increases stemmed from resurgent demand, which coincided with easing mortgage rates at the start of the year.

However, the economists pointed out that mortgage rates have rebounded close to the two-decade highs set in October of last year, which will crimp demand once again.

“Given this and a weakening economy, we expect sales will remain low and that price growth will turn negative again later this year,” Capital Economist researchers wrote. “In the rental sector, prices are headed for an even larger correction. We expect apartment capital values will plunge a further 20% in 2023 and 2024, resulting in a peak to trough fall of around 25%.”

Experts also anticipate home prices to decline in 2023, with most of them pointing to buyers being priced out and sitting on the sidelines, lowering demand as rates stay high.

Data from the Mortgage Bankers Association shows that Americans are facing the least affordable market ever.

The group’s Purchase Applications Payment Index, which shows what borrowers can expect to pay for a newly originated mortgage, increased 0.5% in April to a record high of 172.3. A higher reading indicates declining affordability conditions, resulting from increasing loan amounts, climbing mortgage rates, or declining earnings.

“For new home buyers, this is the worst situation since the end of the Great Recession,” Edward Seiler, MBA’s associate vice president for housing economics, told Insider earlier. “Current homeowners that were lucky enough to get a 2.75% interest rate in 2022 are in a great position, but for new home buyers looking to buy a first home, or those looking to move to another home, it’s a very daunting proposition.”

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