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The booming housing market has started khổng lồ finally slow down under the weight of increasingly high mortgage rates & an affordability crisis, with 2023 expected to lớn be a "tough" and "slow" year, analysts warn.

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The housing market exploded during the pandemic, with a combination of low mortgage rates & low inventory leading to lớn bidding wars between potential homebuyers which gradually caused prices khổng lồ skyrocket.

This year, home prices reached a record peak in June và then started to lớn drop as surging mortgage rates drove many aspiring homebuyers out of the market.


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A low-income housing project in the Bronx borough of New York. Analysts expect trang chủ prices to lớn drop next year after mortgage rates surged in the second half of this year.Getty Images"We actually started seeing the slowdown in activity in late spring, when the interest rates started going up, but it accelerated during the third quarter, particularly in September, when we saw mortgage rates really climb up lớn the 7 percent range," Robert Rulla, a senior director in Fitch Ratings" corporate finance group, told nhanluchungvuong.edu.vn.

"And our expectation is that that"s probably going khổng lồ continue through at least the next 12 to lớn 18 months or so."

Will home Prices Drop Next Year?

Fitch Ratings expects home prices khổng lồ drop in the mid-single digits next year, though the forecasted decline is higher in the new trang chủ market.

"If you look at it from a peak level—which was probably around the third quarter or so— our expectation is that new trang chủ prices next year will probably be down 8 percent lớn 10 percent," Rulla said.

This number appears in the forecasting of other major groups too.

Moody"s Analytics expects house prices to drop by 10 percent next year, as a direct consequence of the combination of skyrocketing house prices & high mortgage rates which has pushed many aspiring first-time homebuyers out of the market.


But house prices could drop even lower if the country enters a recession, according khổng lồ Moody"s.

"If we suffer a recession & say it"s kind of a typical recession in length and severity to the average since World War II, I think prices will be down about trăng tròn percent from your peak to through over the next couple of years. So it"s going to take a couple of years to get to lớn find a bottom in house prices," Mark Zandi, chief economist of Moody"s Analytics, told nhanluchungvuong.edu.vn.

"People just can"t afford these mortgage rates at these prices, something has khổng lồ give. And I think it"s got to lớn be both: mortgage rates vì have lớn come back down from where they are, they can"t stay here forever; but the other is lower house prices, and we need more income growth. Và that goes to lớn the other factor, and that is a weaker job market.

"Under any scenario, the job market is going khổng lồ be a lot weaker in the coming year. The Federal Reserve is working really hard khổng lồ slow job growth and to quell inflation và wage and price pressures. And so, it"s just a question of how weak the job market"s going to lớn be."

Another factor impacting house prices in 2023 will be tighter underwriting, Zandi said.

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"Lenders are going lớn be more cautious in extending credit in this environment of falling prices and higher unemployment, so we"ll get less credit. All those things will conspire to lớn weigh on house prices going forward."

According to Zandi, 2023 is going khổng lồ be a "tough year" from coast to lớn coast. "I don"t see any major market avoiding some form of correction in 2023," he said.


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A combination image representing the housing market in 2023. Aspiring first-time homebuyer were squeezed out of the market this year as prices skyrocketed & mortgage rates surged.iStock / Getty Images

Will There Be a Recession?

A mild recession in the U.S. Has been predicted in Fitch Ratings" most recent global economic outlook despite job growth remaining "exceptionally strong" và growing consumer spending, as the Federal Reserve is rising interest rates at a rapid pace, và this will likely weigh on job growth and consumer spending.

"The global economic outlook is predicting a mild recession in the U.S. Starting in the second quarter of next year, and we do expect an economic slowdown," Kevin Kendra, managing director of Fitch Ratings, told nhanluchungvuong.edu.vn.

"So, with unemployment going back over 5 percent by the over of 2024—I think it"s only going lớn be slightly below 5 percent through 2023—we do expect lớn see some softening in the labor market."

Fitch Ratings expects the U.S. To enter "genuine recession territory" in the second & third quarters of next year.

Kendra expects 2023 lớn be "a slow, slow year as far as mortgage originations " go, with little refinancing activity for new homebuyers.

Will Mortgage Rates Remain High?

Kendra believes mortgage rates are likely lớn remain high next year, but S&P Dow Jones Indices" managing director Craig Lazzara is more cautious in his forecast for 2023.

"It"s quite an uncertain time now ," Lazzara told nhanluchungvuong.edu.vn. "You have this remote work trend that"s shifting the geographies, và at an overall level, we don"t know when the peak in interest rates is going khổng lồ come.

"And I would guess that the kết thúc of the deceleration or the bottoming of prices will not occur probably until approximately the same time that interest rates peak. So, if you had a crystal ball & could tell me that interest rates are going lớn peak và in December of this year, then I would say, 2024 or 2023 is going khổng lồ be a pretty good year for housing because rates are going to lớn be level or down.

"And if you told me rates are going khổng lồ peak in December 2023, I would say 2023 is not going to lớn be all that good a year."

Lawrence Yun, chief economist who oversees the Research Group at the National Association of Realtors (NAR), has a more positive outlook on next year và mortgage rates.

"I think the buyers will return somewhat, because what I"ve noticed in the past couple of weeks is that mortgage rates are coming down," Yun told nhanluchungvuong.edu.vn.

"So perhaps all these inflation fears have been overblown in the general consumer price inflation, & the Federal Reserve may not be as aggressive in trying lớn raise interest rate next year.

"So, the market is incorporating all this information và the end result is that mortgage rates are actually a little bit lower now compared to lớn just two weeks ago. & the housing market is always greatly impacted by changes in mortgage rates."

The key question then would be, is there going khổng lồ an adequate supply of homes as buyers return khổng lồ the market?

"Given the current very high trang chủ prices, my prediction for next year is for trang chủ prices lớn essentially remain neutral, meaning that the country will see some minor change in trang chủ prices, but differences on nationwide levels will be driven by local job market conditions. So, in areas with strong job growth, maybe there will be some small price gain, while the areas where there is a sluggish job market may experience some slight price declines."