Everyone is saying the economy is heading for a downturn—from your colleague at work, to the person on the news, to your cousin at the holidays. But is it true for homebuilders? Are we seeing a decline in house prices? And what is the 2023 outlook for the year ahead?
Redfin suggests a sales slump will push home prices down for the first time in a decade. The forecast projects home sales will fall to their lowest levels in the first half of 2023, with a slow recovery in the second half of the year.
Housing Trends to Watch
The organization sees roughly 16% fewer existing home sales in 2023 than 2022, landing at 4.3 million. Buyers are holding off mainly due to affordability challenges including high mortgage rates, still-high home prices, persistent inflation, and a potential recession. All in all, Redfin expects people will only move if they need to.
Further, mortgage rates will once again fall, ending the year below 6%. Mortgage rates dropping from around 6.5% to 5.8% would save a homebuyer purchasing a $400,000 home about $150 on their monthly mortgage payment. Still, that’s much less affordable than a few years earlier when a 3% rate was common in 2020 and 2021.
Redfin points to several other big housing trends to watch in 2023 including:
- Even with home price declines, the U.S. will avoid a wave of foreclosures through higher homeowner equity and a resilient job market.
- The Midwest and the Northeast will be the regions that hold up the best as the market cools down.
- Rents will fall, and many Gen Zers and young Millennials will continue renting.
- Investor activity will bottom out in the spring, then rebound.
- Gen Zers will seek jobs and apartments in relatively affordable mid-tier cities.
- Americans relocating from one part of the country to another will slow down—following a large surge of such activity during the pandemic.
- Rising disaster-insurance costs will make extremely climate-risky homes even more expensive.
- Buyers’ agent commissions will rise slightly as fewer agents broker fewer deals at lower prices.
What’s Next for Builders
Keeping a close eye on the trends is essential for builders who want to remain profitable in a downturn. One opportunity for builders will be to focus on multifamily rentals, as this particular segment of the market, including apartment buildings and multifamily houses, will make more financial sense for builders next year, as rental demand won’t fall off as much as single-family homes.
Further, as we always say here at Constructech, a slow market offers an opportunity to ramp up technology investments and to shore up business processes. Perhaps now this is as important as ever, as the worker crisis is also running rampant across many industries.
As the market cools off in the first half of 2023, how will your business respond? Will you use it as an opportunity to become more efficient with technology? Will you shift focus to other markets like multifamily rentals? How will you move forward in the year ahead?
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