After two wild years in the housing market, experts say home price growth will fall back to earth in 2023 — but that doesn’t mean houses will be more affordable. In fact, the typical monthly mortgage payment on a home purchased next year could be more than $500 higher than in 2022.
In a new 2023 housing market forecast, Realtor.com chief economist Danielle Hale predicts that home prices will rise by 5.4% next year. That’s a big slowdown from the roughly 10% growth in prices this year and the eye-watering 17% price growth in 2021. It would also be lower than the 6.4% average annual price growth between 2013 and 2019.
But slower price growth overall doesn’t mean that homebuyers should expect bargains. The uptick in prices in the coming months may be modest, but potential buyers should prepare themselves for the extra costs associated with rising mortgage rates.
Where are mortgages rates going in 2023?
Hale expects mortgage rates to average 7.4% next year, which is even higher than their peak of around 7.08% (for a 30-year, fixed rate loan) earlier this fall. (At the beginning of 2022, rates were about 3.22%.)
Mortgage rates that high will mean that the typical monthly mortgage payment will reach $2,430 for a home purchased in 2023, according to Realtor.com's forecast. That would be a 28% bump over the typical payment this year — and twice as high as the typical payment in 2021.
Earlier this month, the real estate brokerage Redfin calculated that a buyer needed to earn more than $100,000 annually in order to afford the monthly mortgage payment on a typically priced home (assuming that the buyer wanted to spend no more than 30% of their income on housing). A year earlier, buyers only needed to earn $75,659 to afford a typically priced home.
It’s a safe bet that as mortgage rates and home prices continue to rise, potential buyers will continue to struggle.
“Affordability is going to be the biggest factor in housing for 2023,” Zillow chief economist Skylar Olsen said in a news release on Thursday, “but there’s room for optimism on that front if mortgage rates recede.”