From Staff Reports

Navigating the 2023 Housing Market: Insights from NAR Chief Economist Lawrence Yun

As the real estate industry reflects on a tumultuous 2022, characterized by shifting dynamics and economic uncertainties, all eyes are now turning to the horizon of 2023. Forecasts from various experts suggest that the coming year will continue to present unique challenges, but also distinct opportunities for growth in specific sectors. At the forefront of these predictions is Lawrence Yun, the esteemed Chief Economist and Senior Vice President of Research for the National Association of Realtors (NAR). During NAR’s fourth-annual year-end Real Estate Forecast summit, Yun offered a comprehensive glimpse into his projections for the year ahead, highlighting critical trends for home sales, prices, mortgage rates, and the top-performing markets.

Yun’s meticulous analysis, far from speculative, delves into precise economic indicators, providing a roadmap for real estate professionals and consumers alike. His predictions for 2023 include an estimated 4.78 million existing home sales, a general stabilization of prices nationwide, and the emergence of Atlanta, Georgia, as the premier real estate market to monitor. Other prominent markets expected to shine include Raleigh, North Carolina, and the thriving Dallas-Fort Worth-Arlington metropolitan statistical area (MSA) in Texas, signaling a strong emphasis on Southern growth corridors.

National Housing Market Outlook: A Year of Adjustment and Stability

The national housing market in 2023 is anticipated to undergo a period of recalibration following the rapid changes of the preceding year. Lawrence Yun predicts that existing home sales will see a decline of approximately 6.8% compared to 2022, settling at around 4.78 million units. This dip from the 5.13 million sales recorded in 2022 reflects a market adjusting to higher interest rates and evolving buyer affordability. Despite this slowdown in transaction volume, Yun offers a reassuring outlook on home prices. The median home price nationally is projected to reach $385,800, representing a modest increase of just 0.3% from 2022’s $384,500. This near-stability suggests that while the frenetic price growth of recent years may be behind us, a widespread crash is unlikely. Instead, the market is finding a new equilibrium, balancing ongoing demand with the realities of reduced purchasing power for some buyers.

However, this national stability will not be uniform across all regions. Yun highlights that “half of the country may experience small price gains, while the other half may see slight price declines.” Notably, markets in California are expected to be an exception, with major metropolitan areas like San Francisco potentially registering price drops of 10-15%. Conversely, many markets, particularly those in the South, are poised for continued appreciation, driven by strong economic fundamentals and persistent demand.

Mortgage Rates, Rents, and Foreclosures

Mortgage rates, a critical determinant of housing affordability, are expected to moderate in 2023. After peaking above 7% in late 2022, the 30-year fixed mortgage rate is forecast by Yun to stabilize around 5.7%. This projected decrease is largely attributed to the Federal Reserve’s anticipated slowdown in the pace of rate hikes as inflation begins to show signs of cooling. It’s important to note that this 5.7% rate remains significantly lower than the pre-pandemic historical average of 8%, offering a more favorable environment for prospective homebuyers than the latter part of 2022.

In the rental market, Yun predicts a continued upward trend, with rent prices expected to increase by 5% in 2023, following a 7% surge in 2022. This sustained growth in rental costs underscores the ongoing demand for housing, potentially fueled by individuals priced out of homeownership or those preferring the flexibility of renting. Despite the broader market adjustments, the foreclosure landscape is expected to remain remarkably stable. Yun anticipates that foreclosure rates will stay at historically low levels throughout 2023, comprising less than 1% of all mortgages. This indicates a healthy financial position for most homeowners, largely due to significant equity gains over recent years and robust lending standards.

Top 10 Real Estate Markets to Watch in 2023 and Beyond: The Southern Advantage

A key takeaway from NAR’s analysis is the undeniable dominance of Southern markets in the projected growth trajectory for 2023. These regions are attracting significant attention due to a confluence of favorable economic conditions, robust job markets, and relative affordability. According to NAR’s report, the demand for housing continues to outpace supply in these high-performing areas. Yun stated, “The economic conditions in place in the top 10 U.S. markets, all of which are located in the South, provide the support for home prices to climb by at least 5 percent in 2023.” This prediction highlights the sustained appeal and underlying strength of these Southern growth hubs, positioning them as national leaders in real estate performance.

NAR meticulously identified these 10 real estate markets, predicting they will outperform other metropolitan areas throughout 2023 and into the foreseeable future. In order of their ranking, these markets are:

• Atlanta-Sandy Springs-Marietta, Georgia
• Raleigh, North Carolina
• Dallas-Fort Worth-Arlington, Texas
• Fayetteville-Springdale-Rogers, Arkansas-Missouri
• Greenville-Anderson-Mauldin, South Carolina
• Charleston-North Charleston, South Carolina
• Huntsville, Alabama
• Jacksonville, Florida
• San Antonio-New Braunfels, Texas
• Knoxville, Tennessee

Spotlight on Key Growth Markets

Atlanta: The Crown Jewel of the Peach State

Topping the list, Atlanta-Sandy Springs-Marietta, Georgia, emerges as NAR’s number one market to watch. This vibrant metropolitan area continues to attract residents and businesses with its diverse economy, robust job growth, and relatively lower cost of living compared to other major U.S. cities. Atlanta’s burgeoning tech sector, strong infrastructure development, and status as a major transportation hub contribute to its persistent housing demand and projected price appreciation. Its ability to maintain a strong affordability advantage while fostering a dynamic economic environment makes it a magnet for migration and investment.

Dallas-Fort Worth-Arlington, Texas: An Emerging Tech Powerhouse

Securing its position among the top three, the Dallas-Fort Worth-Arlington MSA stands out as a prime example of Southern growth. The region has experienced a significant influx of tech workers and the establishment of numerous new startups, solidifying its status as an emerging tech hub in the U.S. This robust economic activity, coupled with attractive housing conditions, makes DFW a compelling market. “Not only is housing more affordable than nationally, but this area provides more options to buyers,” the report detailed, emphasizing the diverse housing stock available to meet varied preferences and budgets. The region’s Housing Affordability Index (HAI) of 95.1 indicates that while the typical family’s income is slightly below what’s needed for a median-priced home, affordability remains a strong relative advantage when compared to other major employment centers. Furthermore, a significant 22.9% of renters in the DFW MSA qualify to purchase a typical home with a 7% mortgage interest rate, pointing to a substantial pool of potential first-time homebuyers. The area’s population growth of 1.3% from January to September 2022, alongside a remarkable 110.5% increase in active listings from October 2021 to 2022, suggests a healthy market balancing strong demand with expanding inventory, offering more choices for buyers without compromising underlying value.

Raleigh, North Carolina: The Research Triangle’s Enduring Appeal

Following closely behind Atlanta, Raleigh, North Carolina, underscores the strong performance of the Southeast. Known for its “Research Triangle” park, Raleigh boasts a highly educated workforce, a thriving technology and life sciences sector, and an excellent quality of life. These factors contribute to steady job growth and sustained demand for housing, making it a consistently attractive market for both residents and investors.

Decoding NAR’s Selection Criteria: What Drives Market Success?

NAR’s selection process for the top 10 markets is rooted in a comprehensive analysis of various economic and demographic indicators. These criteria provide a deeper understanding of what constitutes a resilient and high-growth real estate market, offering valuable insights for stakeholders. Each factor contributes synergistically to market health and future potential:

1. Better Housing Affordability: Markets where a larger portion of the population can reasonably afford a home tend to have more sustainable demand and appeal to a broader buyer base, especially in an environment of rising interest rates.
2. Greater Numbers of Renters Who Can Afford to Buy a Median-Priced Home: This metric highlights the potential for future first-time homebuyers. A strong pool of qualified renters signals robust demand for entry-level homes and a natural progression into homeownership.
3. Stronger Job Growth: A robust and expanding job market is a fundamental driver of housing demand. More jobs mean more people relocating to an area, higher incomes, and greater confidence in making significant financial commitments like home purchases.
4. Faster Growth of Information Industry Jobs: The information industry, including technology and software, typically offers higher-paying jobs. Rapid growth in this sector attracts skilled professionals, boosting local economies and property values.
5. Higher Shares of the Information Industry in the Respective Local GDPs: A significant contribution from the information industry to the local Gross Domestic Product (GDP) indicates a diversified and high-value economy, making the region more resilient to economic downturns and attractive for long-term investment.
6. Migration Gains: Markets experiencing net in-migration (more people moving in than out) are inherently growing. This influx of new residents directly fuels demand for both rental and owned housing, driving market expansion.
7. Shares of Workers Teleworking: The increasing prevalence of remote work allows individuals greater flexibility in choosing where to live. Markets that offer a good quality of life, affordability, and amenities become more attractive to teleworkers, contributing to sustained demand.
8. Faster Population Growth: A growing population is a direct indicator of increasing demand for housing. As more people move to an area, the need for homes, whether new or existing, naturally increases.
9. Faster Growth of Active Housing Inventory: While strong demand is crucial, a healthy market also needs adequate supply. A faster increase in active listings signifies that the market is becoming more balanced, offering buyers more choices and potentially moderating aggressive price increases, leading to more sustainable growth.
10. Smaller Housing Shortages: Markets with fewer existing housing shortages are less prone to extreme price volatility. A balanced supply-demand dynamic fosters a healthier, more predictable environment for buyers and sellers.

Challenges and Opportunities in the Evolving Market

While 2023 is expected to present ongoing challenges, particularly related to affordability and slightly higher mortgage rates compared to the pandemic-era lows, it also brings significant opportunities. The anticipated stabilization of mortgage rates offers a more predictable environment for buyers, while increasing inventory in certain markets provides more choices. For sellers, especially in the high-growth Southern metros, demand remains robust, supporting continued home price appreciation. Navigating this evolving landscape will require a keen understanding of local market dynamics and a strategic approach.

Conclusion: A Year of Recalibration, Not Collapse

Lawrence Yun’s 2023 real estate forecast paints a picture of a market undergoing a necessary recalibration rather than facing a dramatic collapse. While sales volumes may temper, home prices are largely expected to remain stable or see modest gains nationally, with specific Southern markets poised for stronger performance. The moderation of mortgage rates, coupled with historically low foreclosure levels, suggests a resilient market underlying the shifts. For buyers, sellers, and investors, understanding these nuanced predictions and focusing on the dynamic growth regions identified by NAR will be crucial for success in the year ahead.