2022 Market Wrap Up & 2023 Market Predictions

The Saint Paul Area Association of Realtors® (SPAAR) along with our local housing partners has access to the most up-to-date statistics and market analysis. We have compiled resources to help our members better understand the housing market of the last twelve months.

Here’s a 2022 housing market update, at a glance.

The effects of the ongoing pandemic and prolonged inflation trends continue to impact every aspect of American life. On December 14, 2022, the Federal Reserve raised interest rates for the seventh time in ninth months. As anticipated, this has also impacted the housing market and mortgage rates. Wages did not keep pace with inflation hikes, especially affecting first-time homebuyers.[1] According to a report from the National Association of Realtors® (NAR), “the typical family can no longer afford to buy the median-priced home. Buyers need to earn more than $100,000 if they want to purchase the median-priced home without going beyond their budget.”[2]

Despite the increase in rates, an increase in inventory helped to propel 2022 to another record year for home sales. In 2021, buyers had to move quickly, as most listings received multiple offers, oftentimes over asking. 2022 was a more balanced market, though still tended to favor the seller. While the inventory is continuing to increase, there are still more Realtors® than homes available on the market.[3]

In December of 2021, it was expected that mortgage rates would hover around 4%.[4] With continued supply chain issues, world-changing events, and pandemic fluctuations, the rates peaked at 7% in October and November of 2022.[5] [6] These mortgage rate increases caused approximately two-thirds of homes in the US to lose value.[7]

The recent market adjustments have continued the conversation around a “housing bubble pop”. A “bubble”, or a period of quick, exponential growth, is unlikely in the remainder of 2022 and into 2023.[8] After the crash of 2008, lending standards became more thorough, and more protections were implemented. In addition to changes to lending requirements, housing demand continues to outpace housing supply, due to historic underbuilding. In fact, NAR’s Chief Economist, Lawrence Yun states “Housing inventory is about a quarter of what it was in 2008”.[9] This is an added protection against a crash. So, while the market may be shifting, it is more akin to what a “stable market” has been in the past.[10]

2023 Market Predictions

While interest rates have dropped from their most recent highs in October and November, they continue to have a cooling effect on home sales and new construction.[11] Rates are anticipated to remain around 6% but will not reach the lows seen in 2020 and 2021.[12] It is expected that higher interest rates, lower inventory, and Millennials and Gen Z reaching peak home buying age will adversely affect housing affordability and availability throughout the remainder of 2023.[13]

Much like the last few years, demand will likely outpace supply, reducing the likelihood of a similar “bubble pop” that has been on the minds of those that experienced the 2008 housing market crash. As previously mentioned, the increased scrutiny in lending requirements and lack of inventory help insulate the market from a drastic drop.[14] According to the Wall Street Journal, “home prices would have to fall between 40% and 45% from their peak”.[15]

Nationwide, a decline in home sales in 2023 is expected, according to the National Association of Realtors® (NAR). NAR predicts existing home sales will drop from 5.13 million in 2022 to 4.78 million, a decrease of 6.8%.[16] The median home price in the United States will increase slightly from $384,500 to $385,800.[17] Locally, the median home price in the 16-County Twin Cities metro is $365,000 at the time of publication.[18] This will lead to the slowest year in the housing market since 2011.[19] These changes will also affect the rental market with only 15% of renters nationwide being able to afford a median priced home in their respective markets.[20] Rents are likely to increase, although at a slower pace due the uncertainty of home buying and increased supply in multi-family units.[21] [22]

Like the second half of 2022, buyers and sellers are set to be on a more even playing field.[23] The shift in trends means that buyers don’t have to move as quickly as in previous years, with more time to consider their options. Sellers may also see fewer offers and their homes spending more time on the market.[24] With more flexibility with permanent work from home changes, workers will likely continue to move to cheaper and/or warmer locations with more sought-after conveniences, like park systems and education opportunities.[25] NAR’s “Markets to Watch in 2023” are all in the Southeast and Sunbelt States in the US.[26]

What are your thoughts on the past year? We would love to hear from you! Email bwegscheid@spaar.com with your take on the 2022 housing market and predictions for 2023.

[1] On the Horizon: Markets to Watch in 2023 and Beyond, the National Association of Realtors® Research Group

[2] On the Horizon: Markets to Watch in 2023 and Beyond, the National Association of Realtors® Research Group

[3] On the Horizon: Markets to Watch in 2023 and Beyond, the National Association of Realtors® Research Group

[4] Home Prices to Drop by Late 2022, says the Mortgage Bankers Association

[5] Mortgage rates chart for 2022

[6] ‘The Worst Is Over’ for Mortgage Rates Despite Another Fed Hike, Experts Say

[7] Housing Market Predictions | Real Estate Market Forecast

[8] When Will the Housing Market Crash?

[9] NAR's Lawrence Yun Predicts US Home Prices Won't Experience Major Decline, Could Possibly Rise Slightly in 2023 if Mortgage Rates Remain at 7%

[10] These US housing markets are most stable as prices fall: Redfin

[11] Housing Market Predictions | Real Estate Market Forecast

[12] ‘The Worst Is Over’ for Mortgage Rates Despite Another Fed Hike, Experts Say