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Will the market drop in 2023?

Fannie Mae sure thinks so.  They expect home prices to fall next year. As the Federal Reserve policymakers struggle with inflation, Fannie Mae’s predictions are: National home prices to decline by 1.5 percent in 2023, and home sales predicted to fall by 21 percent.

While the fight to control inflation by tightening the monetary policy continues, the slowing effect on the housing market of the higher mortgage rate environment is predictable and evident. Prices are trending downward.

This month’s forecast represents the first time Fannie Mae has predicted home price declines in 2023.

The federal reserve has raised interest rates five times this year. Three of those increases have been three consecutive 75-basis point increases to the federal funds rate. And there is the expectation of another 75-basis point increase on Nov. 2, 2022. This has predictably priced a lot of home buyers out of the market with mortgage rates more than doubling this past year. Cause for pause to put it mildly.

Fannie Mae is forecasting home prices to average 9 percent appreciation for the remainder of 2022 before falling into negative territory by the second half of next year. And they predict prices in unaffordable markets, like ours, to see price drops exceeding the national average.

They are also predicting a 21 percent drop in 2023 home sales. Seems we have some big adjustments on the horizon if they are accurate in their predictions, or maybe more modest ones if they are somewhat accurate. Factors contributing the big drop in home sale predictions include the combination of diminished affordability and the large financial disincentive for existing homeowners to take out a new mortgage at current rates.

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