This Is How Far US Home Prices Could Fall — and When

  • As demand fades in the housing market, price cuts have become widespread. 
  • Insider asked several experts about how far they think prices will fall in 2023.
  • Most say that larger cuts are on the way but that they do not fear a severe downturn.

Throughout much of the pandemic, an unusually high demand for housing had pushed US home prices soaring. But as a combination of surging inflation and higher mortgage interest rates put a strain on budgets, home-buying activity has been increasingly cooling off — and it’s translated to fewer home sales and the largest wave of price cuts since the Great Recession.

Indeed, prospective buyers are seeing more discounts. According to the S&P CoreLogic Case-Shiller National Home Price Index, home prices fell by 1% in September — the most recent month for home price data — marking the third consecutive month of declines. However, despite more sellers cutting asking prices, home prices have still increased by 10.6% year-over-year.

“As the Federal Reserve continues to move interest rates higher, mortgage financing continues to be more expensive and housing becomes less affordable,” S&P analysts wrote. “Given the continuing prospects for a challenging macroeconomic environment, home prices may well continue to weaken.”

While experts have maintained that home prices are unlikely to plummet in a similar fashion to the housing boom of the mid-aughts, evidence is mounting that the current housing downturn is growing more severe by the day.

To get a sense of how far US home prices could fall, Insider compiled commentary and forecasts from experts in the worlds of investing and housing. Here’s where they think prices will land in 2023: 

Goldman Sachs

Global investment firm Goldman Sachs downgraded its forecast for US home prices in a note from October and now projects them to fall between 5% to 10% from the peak prices seen earlier this year. The firm had previously predicted a less severe drop in housing prices but says that it had updated its projection due to increased interest rates. The Goldman note also adds that further declines will be attributed to higher housing costs as “unsustainable levels of housing affordability” will continue to weigh on housing demand.

“Housing is a risk to economic growth in all G-10 countries,” Goldman’s researchers wrote. “The model’s forecasts are slightly more negative than in September because actual and forecasted interest rates have increased, their estimates for economic growth in North American have fallen and home prices have missed expectations.”

Lawrence Yun, chief economist at National Association of Realtors

Lawrence Yun of the National Association of Realtors anticipates widespread home price declines in 2023, but does not believe they will be severe. It’s a sentiment he shares with colleague Nadia Evangelu, senior economist with the NAR.

According to Yun, insufficient inventory levels are likely to keep home prices elevated in about half of the country, while the other half sees declines as large as 10%. Overall, he forecasts home price growth will stagnate next year. 

“Inventory levels are still tight, which is why some homes for sale are still receiving multiple offers,” Yun said in a November housing report. “In October, 24% of homes received over the asking price. Conversely, homes sitting on the market for more than 120 days saw prices reduced by an average of 15.8%.”

Ivy Zelman, CEO of Zelman & Associates

As long as mortgage rates remain elevated, Ivy Zelman, who has long had a more sober perspective on the housing market, believes that demand will continue to shrink in the US housing market — ultimately resulting in steeper price cuts. For 2023, Zelman predicts that prices could fall as much as 20%.

However, in markets without supply constraints — like the midwestern and northeastern states —  she says that declines could be “in the mid singles.” 

“If we don’t see any type of improvement in the economy and rates are stubbornly higher than 6%, I think you are going to see pricing continue to decline,” Zelman said in a recent interview with Ted Oakley of Oxbow Advisors. 

Doug Duncan, vice president and senior economist at Fannie Mae

Fannie Mae has revised its 2023 home price growth forecast due to slower home sales. Instead of prices growing 4.4% like they predicted back in July, the organization now expects them to fall 1.5% year-over-year. On an annual basis, Fannie Mae says house price growth will turn negative beginning in the second-quarter of 2023.

“The HPSI reached an all-time survey low this month, in line with expectations that the housing market will continue to cool in the months ahead,” Duncan said in an October housing report. “Consumers are increasingly pessimistic about both homebuying and home-selling conditions.”

Sam Khater, senior economist at Freddie Mac

Freddie Mac’s quarterly forecast indicates that rates will play the largest role in determining the trajectory of home prices in 2023. It all comes down to the fact that many homebuyers are facing borrowing costs that have more than doubled in the past year.

According to Freddie Mac’s Sam Khater, house price growth will average 6.7% in 2022 and then decline by 0.2% in  2023.  

“Mortgage rates have increased at the fastest rate in four decades, quickly taking the wind out of the sails of the housing market,” Khater said in the report, adding that as buyer activity continues to contract, the organization expects “the combination of much lower demand and higher supply will cause home prices to decrease during the next year.”

Orphe Divounguy, senior economist at Zillow

Data from real estate brokerage Zillow shows that housing demand in the US has likely fallen by more than 30% in the past year. Zillow’s Orphe Divounguy says the shift is likely to pull prices down even lower next year — especially in markets like Phoenix and Denver where builders and developers have introduced an abundance of inventory. 

However, he says that buyers won’t see any dramatic price cuts in 2023. “The price adjustment is going to be very slow,” Divounguy told Insider. “The reason why is because existing homeowners have pulled back. New listings are down.”

“You’re not going to see that huge price adjustment that everybody is hoping to see,” he added.  

Jose Torres, senior economist at Interactive Brokers

Jose Torres of Interactive Brokers has a bleak outlook for the US real estate market. With inventory levels at all-time lows, he believes supply and demand dynamics will give way to significant price declines nationwide.

On a July call, Torres told Insider he believes that US home prices could drop by as much as 25% by the second half of 2023. His bearish outlook is attributed to the nation’s housing affordability crisis which he says has created a housing ecosystem where there are “no buyers in sight.” 

“In a similar fashion to the months leading up to the 2008 real estate market debacle, the percentage of average monthly payments to household income and personal income have been at record high levels throughout this year, which is creating demand for rental units among Americans who can’t afford homes,” Torres said.

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