Home Prices Could Level Out in 2023, Redfin Says. What Could Make Them Drop.

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As the housing market cools down from its red-hot pandemic pace,

Redfin

economists foresee home prices flattening or rising modestly next spring. It would take more than just higher mortgage rates to send prices lower, says the brokerage’s chief economist.

Redfin economists expect national home prices to be flat to 4% higher in the spring of 2023 compared with the year prior, due to slowing or negative economic growth and rising unemployment.

Such a deceleration in year-over-year price growth would be significant. Redfin on Thursday said the median home sale price was 14% higher for the four-week period ending June 26 from a year earlier. Home sale prices tracked by Redfin have climbed by more than 10% year over year in every four-week period since the summer of 2020, according to the brokerage’s data.

Redfin notes that its forecast could change given fluctuations in interest rates and the market.

A recent jump in mortgage rates has made some homeowners anxious about selling—but Redfin’s chief economist, Daryl Fairweather, says it would likely take a recession resulting in high unemployment to send home prices broadly lower. In such a scenario, “people aren’t just stopping buying homes because of mortgage rates,” she says. Rather, buyers would pull back because of economic anxiety pertaining to job loss.

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Home prices in some markets are more at risk of declines than others. Redfin sees metro areas such as Boise, one of the hottest markets throughout the pandemic, and some West Coast locales at greatest risk of a decline in prices over the next year. In any housing market slowdown, Fairweather notes, the upper price tiers of the market tend to experience the greatest weakness, while demand remains higher for homes in the lower-price tiers.

On the other hand, home prices could rise more than anticipated if the Federal Reserve were to react to a mild recession this summer or fall by lowering interest rates. That, in turn, could bring mortgage rates down—and buyers back to the market.

Rising home prices and mortgage rates that have risen more than two percentage points since the end of 2021 have combined to price out some buyers. In the first five months of the year, the median mortgage payment increased by more than $500, the Mortgage Bankers Association said last month.

Despite the higher cost of purchasing a home, Redfin said some data indicate that the buyer exodus has slowed.

“Data on home-tours, offers and mortgage purchase applications suggest that homebuyers have noticed the shift in power and are no longer leaving the market in droves,” Fairweather said in a release. “Buyers coming back will provide support to the housing market, but between now and the end of year I think the power will continue to shift towards buyers, resulting in mild price declines from month to month.”

Write to Shaina Mishkin at [email protected]