What To Expect From the Housing Market in 2023

Updated: Mar. 13, 2023

If you're wondering what to expect from the 2023 housing market, you're not alone. Read this guide to find out more.

As the first quarter of 2023 nears an end, many eyes are fixed on the current state of the U.S. housing market. With pandemic-spurred skyrocketed home values, fluctuating interest rates and an ever-growing demand for housing, it can be tough to guess where the market will land this year.

In this guide, we’ll review what homebuyers and sellers might expect from the 2023 housing market.

Is the Pandemic Housing Boom Over?

For the most part, yes. While we’re likely past the massive spikes in home prices and a wildly seller-favored market, its effects will take longer to subside or balance out than some might expect.

The pandemic’s impact on housing was enormous. When historically low interest rates, high demand for housing and low inventory combined with a shift in consumer spending that favored housing over vacationing or entertainment, home prices went through the roof.

According to a recent report from the Home Improvement Research Institute (HIRI), prices increased 30% from 2020 to 2021. Buyers came to sellers with strong offers — often above the asking price, with cash — and sellers could name their prices.

But with inflation climbing to astronomical levels, this couldn’t last. In an attempt to quell inflation, the Fed raised interest rates several times. That sent mortgage rates soaring to just over seven percent currently. This will continue to impact housing prices moving forward.

Why Some Home Prices Are Rising While Others Are Falling

Many expected home prices would drop as a result of the interest rate increases. While prices did fall, it wasn’t universal. Housing prices in some areas actually increased over the last few months.

This boost in asking price stems from a few factors. For one, market inventory is still low. With interest rates high, most homeowners with low-rate mortgages are staying put rather than selling and financing another home.

Also, new construction starts are at some of the lowest rates in the past eight years. According to the HIRI report, housing starts dropped from 1,720 in 2022 to 1,191 in 2023. Also, according to the same report, single-family permits dropped 6.5% in December 2022 — the tenth consecutive month that number fell.

It’s really a demand issue. Higher interest rates will force motivated sellers to lower their asking price or make concessions to move their homes. But some markets aren’t nearly as affected. Many experts believe homes in lower-priced regions may see slight increases in value, while those in more expensive regions will likely drop.

“Home prices will be steady in most parts of the country with a minor change in the national median home price,” says Lawrence Yun, chief economist for the National Association of Realtors.

What does this mean for the 2023 housing market? Expect prices to level out rather than plummet. Price changes, up or down, are likely to remain close to steady.

What’s Happening With Housing Demand

One challenge for the 2023 housing market is the seemingly perpetual inventory issue. There just aren’t enough homes on the market, and this will continue to bolster the asking prices of those ready to sell. And with construction starts at near-historic lows, there really isn’t an immediate solution in sight.

Decreased demand and inflated housing prices create a complex scenario. Homes that are on the market stay on the market for a long time, much longer during the pandemic. And this extended timeline could provide buyers with the leverage they need to negotiate for better pricing, something they haven’t been able to do since 2020.

Are We Headed for a Housing Recession?

By definition, a recession is a significant decline in economic activity that lasts more than a few months. While the country may be heading for a recession, the housing market might not be.

Many experts believe the housing market will level out and take a small step back in 2023. Rick Sharga, executive vice president of market intelligence at ATTOM Data, said his team estimates about a 5% drop nationally. “I think we’re more likely to see the market cool rather than crash,” Sharga says.

That may be the trend, but “cooling” is a relative term. The HIRI report expects a downward correction of about 16%. That’s still markedly higher than pre-pandemic prices, however, so a full-on crash looks unlikely.