If 2022 was a year where the housing market began to recalibrate after a whirlwind 2021, then 2023 could end up being more of the same, according to some housing experts. Many of the issues triggering changes in the market – low inventory, higher mortgage rates, rising inflation – are expected to carry over into the new year.

“The rate of growth in house prices slowed in 2022 compared to the heights reached in 2021, while the number of sales remained low,” said Dr. Daniel McMillen, head of the Stuart Handler Department of Real Estate at the University of Illinois at Chicago College of Business Administration.

“Although uncertainty regarding interest rates and the rate of inflation makes the market difficult to predict, our forecast is that rates of growth in prices will be low throughout the first half of 2023, after which they are expected to rebound. The number of sales is forecast to be low in the Chicago area throughout 2023, but the number is expected in increase in the rest of Illinois during the second half of the year.”

Dr. McMillen and his team provide Illinois REALTORS® with monthly, quarterly and annual housing market forecasts. The full 2023 Illinois Forecast is now available.

The Illinois forecast at-a-glance:

  • Median prices are forecast to grow throughout 2023 within a lower and narrower range compared to 2022. By December 2023, the median price in Illinois is forecast to be $257,700 (up 3.5 percent) while the median price for the Chicago Metro Area could be $312,900 (up 5.6 percent on an annual basis).
  • Sales are forecast to experience mixed trends for both Illinois and the Chicago Metro Area. Statewide, sales will have negative growth in the first half of the year, but then shift to positive. In the Chicago Metro Area, however, there will be negative sales growth most of the year.

What other economists are saying about the 2023 housing market

“Housing inventory is about a quarter of what it was in 2008. Distressed property sales are almost non-existent, at just 2 percent, and nowhere near the 30 percent mark seen during the housing crash. Short sales are almost impossible because of the significant price appreciation of the last two year.”

Yun has said he expects home sales to decline by 7 percent, while the national median home price will increase by 1 percent, with some markets experiencing price gains and others price declines. He also projects a strong rebound for housing in 2024, with a 10 percent jump in home sales and a 5 percent increase in the national median home price.

National Association of REALTORS® Chief Economist Lawrence Yun

“After being overwhelmed in the housing frenzy of the recent past, homeowners, sellers, buyers and renters may be underwhelmed in 2023. The slowdown in home sales transactions that began as mortgage rates surged in 2022 is expected to continue, leading to a moderation in home price growth and tipping the housing market balance away from sellers. But with mortgage rates continuing to climb as the Fed navigates the economy to a soft-ish landing, the moderation in home price growth will not be enough for the housing market to be a buyer’s bonanza. Instead, homes shoppers will enjoy advantages such as a growing number of homes for sale, but costs remain high, challenging affordability at a time when overall budgets continue to be squeezed.”

Danielle Hale, Chief Economist

“Following the recent mortgage rate surge above 7 percent, real estate activity and consumer sentiment regarding the housing market took a nosedive. Home price growth continued to approach single digits in October, and it will move in that direction for the rest of the year and into 2023. However, while some housing markets have seen significant recalibration since the spring price peak and are likely to post losses in 2023, further deteriorating for-sale inventory, some relief in mortgage rate increases and relatively positive economic news may help eventually stabilize home prices.”

CoreLogic Interim Lead, Deputy Chief Economist Selma Hepp

“Mortgage rates have increased at the fastest rate in four decades, quickly taking the wind out of the sails of the housing market. Caused by stubbornly high inflation and higher mortgage spreads, the rise in rates has created affordability challenges that have forestalled many consumers’ decision to buy a house. As housing market activity continues to contract, we expect a gradual increase in the supply of homes available for-sale, as compared to historically low levels last year. The combination of much lower demand and higher supply will cause home prices to decrease during the next year.”

Freddie Mac Chief Economist Sam Khater

“We forecast total existing home sales will be 5.03 million in 2022 and 3.90 million in 2023 before rebounding in 2024 to a pace of 4.60 million. With mortgage rates continuing to rise over the past month, (the 30-year fixed-rate mortgage was 7.08 percent according to the November 10 Freddie Mac survey) the full effects of rate increases on home sales have yet to be felt. Affordability measures are strained, which we expect will continue to limit home purchases by first-time homebuyers.”

“However, perhaps the larger effect on total home sales is a growing “lock-in effect,” which is the financial disincentive for existing homeowners with a fixed-rate mortgage that is well below current market rates to put their home on the market, move, and take on a new mortgage rate well above what they had previously. Our rather bearish outlook in 2023 for existing home sales – we are now projecting the lowest annual pace since 2008 – is in part driven by this dynamic.”

Fannie Mae Economic and Housing Outlook

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