Four months in a row have seen a fall in the median home price, with the negative momentum continuing in November and December. Given present tendencies, a peak-to-trough decrease in housing values of 10% looks very plausible going into 2023. This may sound dramatic, but when you examine where it would put home prices, it implies that even if we saw that decrease completely materialize by April of 2023, prices would only be down by around 5% annually. Even though homeowner equity will suffer as a result, just 1% to 2% more homeowners will go into negative equity.

Two significant differences will exist between 2023 and 2010. First, following the previous boom, mortgage lending requirements have remained strict. People are able to afford their mortgage payments. Second, homeowners can endure this correction because they are well-qualified. Similar to what was witnessed during the crisis, there won’t be any forced home sales.

Inventory levels have been unusually low since the start of 2020. When the nation’s months-supply of inventories fell to its lowest point of 1.6 months in the first half of 2022, it stood out. Inventory will continue to build up in 2023 as the months’ supply of inventory rises to levels consistent with a balanced market (5–6 months) or potentially even a buyers’ market (6+ months). Days on the market are probably going to keep growing and reach a high next spring, along with supplies. The market will feel much more normal in 2023 for individuals wanting to purchase than it did in 2021 or 2022.

At the moment, employment and inflation are the “known unknowns.” When will inflation start to decline, and how will this affect employment? As we approach 2023, there currently appear to be encouraging signs that inflation will begin to decline. Even if employment hasn’t changed, there’s a good chance that unemployment will have to rise when the economy slows down as a result of increasing interest rates. Click here to read more.