We are at the end of 2022 and the new year is approaching rapidly. This makes it the ideal opportunity to forecast real estate issues for 2023. Many homeowners, potential sellers, and potential purchasers are anxious about next year due to rising mortgage rates, slowing home sales and, in some places, housing prices, and greater market uncertainty.
Due to the latest market trends and the ongoing recession scenarios, the market predictions are not looking so great and the uncertainty to predict anything for sure seems vague as of now. For a clear picture of the coming year and what it has to offer for the housing market, the recent surveys and predictions from the experts are to be considered.
An overview of the market
As per the recent report of mortgage leader Economic and Strategic Research Group (ESR), housing prices are expected to drop by 1.5%, whereas another research by Zillow says that the prices are to drop in about 271 states in the coming year.
Whether the market is going to rise or fall, at some level depends on the demand in the market. Even though it can seem simple, this is how markets operate. When demand is satisfied, prices decline. In many real estate markets, there is currently an excessive demand for properties, and there are just not enough available to sell to interested buyers. Although it has picked up recently, home construction is still far behind. Large declines in house prices would therefore need sizable drops in consumer demand.
Demand declines mostly because of rising interest rates or an overall deteriorating economy. Rising interest rates require much less home demand and much more house supply than we now have. Even if price growth slows this year, a significant decline in home values is quite improbable.
There won’t be a decline in home values as a result; rather, there will be a pullback, which is typical for any asset class. In the United States, the increase in home prices is expected to “moderate” or slow down in 2022 and 2023. As single-family homebuilding declines in 2023, housing supply will fall to keep a lid on home price increases. Homeowner trust has declined for ten straight months, according to a report released in October by the NAHB homebuilder’s association.
The market seems quite unsure as of now due to the recent phase of the recession, and it’s quite difficult to even for the experts to make a sure prediction. As of this moment, the experts are divided into two groups, one claiming the market to fall, the other saying it to be stable or slow down a bit but not falling.
Experts of Zillow Home Price Expectations Survey (ZHPE) based on their research claimed that the coming year is going to be a ‘Buyer’s year’, instead of a ‘Seller’s year’. The reason is higher mortgage costs and less competition in the market. Apart from this, the panel also suggested that the rents will outperform inflation in the coming year.
According to Zillow, the rate of increase in home values, which reached record highs during the pandemic, is now slowing because rising mortgage rates and difficulties with affordability are discouraging many potential buyers. According to respondents to the ZHPE study, Midwest markets including Columbus, Ohio; Indianapolis; and Minneapolis are the least likely to see a fall in home prices over the coming 12 months. Zillow predicts that the markets most likely to see price drops over the coming year are those that saw some of the highest price growth during the pandemic, including Boise, Idaho; Austin, Texas; and Raleigh, North Carolina.
The US, and Canadian Market
The predictions for both US and Canadian markets are similar in terms of rise in the housing prices. From various sources and experts, the outcome is similar only. The Canadian market is expected to experience a fall of 25% as per the reports by the Desjardins forecast. In the previous report of Desjardins, the fall was predicted to be 15%, but in the recent report, it has been stated to be 25%.
The Canadian market is further predicted to get settled by the end of the year 2023, as the fall in sales is expected to slow down. It is further predicted to experience a 20% to 25% decline in housing values. This would indicate a 1.2% increase in 2022 and an 11.5% decline in 2023 on an annual basis. This pessimistic forecast for Canada’s housing market is due to worse-than-expected statistics this year and a more active monetary policy than anticipated, which has led to higher mortgage borrowing costs.
The Bank of Canada’s policy interest rate is expected to reach its peak this year at 3.25%. However, the Bank might be forced to start lowering rates by the end of next year due to the Canadian economy’s fragility, which is mostly brought on by the collapse of the property market. Bond yields seem to have reached their top, and markets seem to be preparing for this.
For the US market, it is predicted that housing prices may decrease in 2023. Most experts have anticipated that rising mortgage rates will have a dampening effect on the housing market, and it appears that property values are already trending down. The ESR group projects a 1.5% decline in national home prices for the entire year 2023.
Contrary to this report, Zillow has predicted that the prices will not fall for the year 2023 but might fall for the remaining 2022 months. It is expected to rise in most markets, however, in the month of August, it was predicted to fall in 271 markets. Further, it is expected that the housing supplies will decrease in the year 2023 for the US market.
Prediction for PropTech Companies
When it comes to making predictions based on certain factors, it seems easy, but the reality is different as concluding predictions based on the data, from different experts leads to multiple opinions. As already discussed above two different research experts concluded two different things.
However, one thing that can be concluded from the current scenario and predictions is that the housing market is going to suffer in the coming year. With the recession hitting hard, the housing market has slowed down, construction has closed to some limit, selling seems difficult with a slow market, and even the chance of a mortgage seems bleak.
The entire world is suffering from recession, and this is having some impact on the PropTech companies as well. The PropTech industry is going to suffer a slow year, and the industry will have low prices, however, low prices might look great for the buyer but from the seller’s perspective, the market does not look great. In the coming year, PropTech companies are going to face a certain amount of pressure to cope with the market scenario for survival in the market. Apart from this, the pressure would be for keeping themselves updated in the industry and trying to be relevant, and producing a certain USP to make them stand out from other players in the market.