- BiggerPockets’ Dave Meyers forecasts national housing prices will come down in 2023.
- However, markets with higher inventory will face steeper price corrections.
- These include cities that were exceedingly popular with investors during the pandemic.
Low interest rates, easy money, and a dwindling supply of new homes sent nationwide housing markets into uncharted territory over the last two years. As millennials hit their peak home-buying age while more investors than ever rushed into the real estate sector, home prices skyrocketed to stratospheric levels, forcing the Federal Reserve to pump the brakes on cheap lending.
But as the new year begins, this perfect storm of factors should unwind, pushing the housing market back to its historical balance, said Dave Meyer, the vice president of data and analytics at real estate educational platform BiggerPockets and a real estate investor since 2010.
“When you see inventories start to spike, that signals a significant shift towards a buyer’s market where prices are probably going to go down. We have seen that in the last six months that inventory is going up,” he explained on the January 24 episode of the BiggerPockets Real Estate Podcast. Meyer cautioned that any investors hoping for a dramatic decline in home prices would be disappointed, adding that levels are simply returning to where they were pre-pandemic.
Prices are likely to go down in 2023
According to Meyer, the housing market in 2023 should be a tale of two halves. But for the next few months, the environment shouldn’t feel too different for investors.
“I feel confident that we’re probably going to see a continuation of the current market conditions through at least the first half of 2023,” he explained. “Right now, there’s just still so much uncertainty … I think we’re going to see people freaking out a little bit and not really having enough stability for the market to find its footing.”
But in the second half of 2023, three different scenarios could dictate the market, depending on factors such as affordability, the severity of a global recession and its impact on mortgage rates, as well the chances of the Fed pulling off a soft landing.
“Two of the three scenarios in my mind point to a one-year correction where we’re going to see single-digit price declines. I’ve said I think it’s going to be somewhere between 3% and 8% negative on a national level if mortgage rates stay high,” Meyer explained.
Today’s interest rates, though actually around their historical average, are still high compared to where they were a few years ago, which has negatively impacted affordability, Meyer explained. “Affordability has declined to the point where prices are likely, in my opinion, going to go down a little bit in 2023,” he added. But once affordability begins to improve again, Meyer believes the housing market will bottom, spurring new growth.
Be careful where you park your money
While Meyer is predicting a broader price correction in 2023, he also cautioned that local housing markets can behave very differently, recommending investors extensively research their specific market to find out if it currently favors buyers or sellers. For comparison across markets, two variables he considers are inventory levels and days on market.
“If inventory is staying flat and is still below pre-pandemic levels, you could probably expect that the housing market in that area is going to either be relatively flat or maybe modestly even grow over the next year,” Meyer explained.
He said that markets in the Midwest, Northeast, and Southeast such as Chicago, IL; Philadelphia, PA; Boston, MA; Indianapolis, IN; New York, NY; and Dallas, TX are less susceptible to declines because they saw more modest appreciation and their prices remain stable right now.
On the other hand, Meyer warned that inventory spiking above its pre-pandemic levels is a sign that prices might go down in that particular market, a phenomenon that can be observed in cities that were exceedingly popular with investors during the pandemic such as Boise, ID; Reno, NV; Austin, TX; Las Vegas, NV; and Denver, CA.
Along the same vein, Meyer added in his 2023 real estate investing outlook report that markets with a history of low affordability such as Denver, CA; Seattle, WA; and San Francisco, CA could — in the worst-case scenario — experience price declines anywhere between 20% to 30%, citing data from Moody’s analytics.
“These markets are seeing more of a correction, because they just went up too high. They’ve reached a level that is just not sustainable for people — their wages cannot sustain the prices that we’ve seen in some of these boom towns,” he explained.