Home Prices Will Fall for First Time in 10 Years: Real Estate Brokerage

Housing under construction at a development in Novato, Calif., on March 23, 2022. (Justin Sullivan/Getty Images)

Yearly home prices in the United States are set to fall next year for the first time in a decade, with residential property sales also declining, according to real estate brokerage Redfin.

The median home sales price is expected to drop by 4 percent to $368,000 in 2023, which will be its first annual decline since 2012, a Dec. 6 press release states. Redfin blames elevated mortgage rates as one of the reasons for the drop. If there were no shortage of homes for sale, prices would fall more, it stated. The brokerage expects new listings to decline through most of 2023. This will keep total inventory near historically low levels and also prevent a plummeting in prices.

“Very few homeowners are likely to see their mortgages fall underwater even with next year’s anticipated price declines,” according to the release.

“That’s because the homeowners who’ve had their home for at least a few years have fixed low mortgage payments and plentiful home equity after values skyrocketed during the pandemic.”

Redfin expects existing home sales to be at 4.3 million in 2023, which will be lower by roughly 16 percent when compared to 2022.

Prospective buyers will dial down their intent to purchase owing to affordability issues like elevated home prices and mortgage rates, a potential recession, and persistent inflation, the brokerage states.

Region-wise, housing markets in the east coast and Midwest metros, especially in upstate New York, some parts of Connecticut, and the Chicago area are predicted to “hold up relatively well” amid a nationwide cooling down.

Falling Mortgage Applications, Declining Rates

The Redfin report comes as mortgage applications are falling, according to the most recent data from the Mortgage Bankers Association (MBA). For the week ending Dec. 2, mortgage applications fell by 1.9 percent from the previous week.

Joel Kan, MBA’s vice president and deputy chief economist, pointed out that purchase activity slowed down in the previous week, with the fall in conventional purchase applications being partially offset by a rise in USDA and FHA loan applications.

“The average loan size for purchase applications decreased to $387,300—its lowest level since January 2021. The decrease was consistent with slightly stronger government applications and a rapidly cooling home-price environment,” Kan said in a Dec. 7 news release.

The average rate for a 30-year fixed-rate mortgage was at 6.49 percent for the week ending Dec. 1 according to data from Freddie Mac. This is slightly down from the peak of 7.08 percent hit in the week ending Oct. 26. However, it is more than double the 3.11 percent rate registered a year ago.

Freddie Mac noted that the recent drop in interest rates is driven by investor optimism that the Federal Reserve might slow down the pace of increasing its benchmark interest rates.