San Diego is among the home markets expected to cool the most in 2023, a new report said.
Housing website Redfin’s long-term analysis of next year says West Coast markets and metros that experienced the biggest gains during the pandemic will slow the most. It selected the markets by looking at data from February through November that shows price reductions, inventory declines, number of homes for sale and other factors.
The San Diego metropolitan area was No. 9 in its list of markets expected to cool the most. It said the areas that will suffer the most are Seattle, San Jose, Las Vegas and Salt Lake City. The metros less likely to experience declines were Lake County (Illinois), Chicago, Milwaukee and Albany.
Redfin stopped short of predicting how much prices in metro areas might drop, instead relying on recent trends to predict which markets will cool the most. As of October, San Diego County home prices had declined for five consecutive months. Redfin said national prices should drop about 3 percent by the end of next year.
Here are Redfin’s national predictions and how they relate to San Diego:
Home sales will be lowest since 2011
Redfin predicts 16 percent fewer home sales in 2023 than the previous year. There are two reasons for this: would-be buyers are priced out of rising mortgage rates, and potential sellers don’t want to look for a new home while the interest rates are likely to be higher than their current mortgage.
“People will only move if they need to,” wrote Taylor Marr, Redfin’s deputy chief economist.
San Diego County home sales recently hit their lowest point in years. There were 2,354 home sales in October, CoreLogic said, its lowest monthly figure since May 2020, when the initial shock of the pandemic halted the market, only to lead to an increase in prices and sales starting the following month.
Redfin said its forecast is based on several factors, including inflation and interest rates, which eat into affordability. But it said inflation is likely to continue to fall and the Federal Reserve will feel less pressure to continue raising rates that drive up borrowing costs.
Redfin predicts mortgage rates will gradually decrease until the end of 2023, to about 5.8 percent. The interest rate for a 30-year, fixed-rate loan was 6.38 percent as of Monday morning, Mortgage News Daily said.
Hottest markets are no longer cool
Redfin said relatively affordable Midwest and East Coast metros — which haven’t seen explosive growth in home prices like San Diego — are expected to hold up the best in the coming year.
Marr wrote that markets not caught up in the pandemic home-buying frenzy should be more insulated from price corrections. He said pandemic boom cities — Austin, Boise and Phoenix — could be in for a big downturn.
San Diego metro has regularly been in the top 3 fastest appreciating markets in the closely watched S&P Case-Shiller indices throughout the pandemic. The 20-city index reported a 30 percent annual price increase for San Diego in March, but was down to a 9.5 percent increase in September.
Rents will fall
Redfin said rents are falling, based on vacancy rates that have risen in recent months and a greater supply of rentals than normal.
Multifamily construction was at a 50-year high in September, which means there are plenty of new buildings competing for tenants. Even owners who had planned to sell single-family homes are now more likely to put them on the rental market instead.
As of this week, real estate tracker CoStar said the apartment vacancy rate in San Diego County was 3.4 percent, up from 2.3 percent around the same time last year. The average asking rent was $2,321 per month, down from $2,352 in the third quarter.
Redfin said rents have fallen more, but millennials and Generation Z are becoming less likely to become first-time homebuyers and more likely to rent indefinitely. It said higher mortgage rates and few homes for sale make renting the most likely long-term scenario for many.
Migration will slow to costly metros
San Diego employers, desperate to find workers, may be frustrated to learn that most migration forecasts show people prioritizing less expensive metro areas.
Redfin said Generation Z, in particular, will have more flexibility to move where they want with the growth of remote work. That means they can look for more affordable places that people will pay to move to.
Tucson has a program that pays remote workers moving expenses, free internet and other benefits up to $7,500; Northwest Arkansas has a program that pays $10,000 and provides a mountain or road bike; Savannah, Georgia, pays tech workers up to $2,000 in moving expenses; in Topeka, Kansas, will give up $ 15,000 after a rent or buy a house.
San Diego has promotions and advertising campaigns to get workers to move here, but it does not offer direct economic payments. The San Diego Economic Development Corp.
Will house prices go up or down in 2023?
Based on this data, Capital Economics has forecast house prices to rise throughout 2022, before falling by 5% in 2023.
What will house prices be in 2023? A better rate of 6% will be available for those willing to go with a five-year ARM.†Freddie Mac: Forecast rates will fall from an average of 6.8% in the fourth quarter of 2022 to 6.2% in fourth quarter of 2023.
Will 2023 be a good year to buy a house?
Mortgage rates are sky-high, inventory is low, and prices are still elevated from their pandemic spikes — making it a less-than-ideal time to buy. “Homebuyers and renters hoping for financial relief in 2023 are likely to be disappointed,” writes Clare Trapasso for Realtor.com.
Will prices go back down in 2023?
But the savings will be negligible because of the wind. Home prices may fall by 8 percent, but rising mortgage rates and a “mild recession” will dent savings and buyers’ pockets, according to Capital Economics’ new US Housing Market Outlook.
Is real estate a good investment in 2023?
House price growth is returning, providing investors with more affordable investment opportunities. Higher interest rates could eat into cash flow, but less competition makes 2023 a great time to buy.
Will 2023 be a good year to buy a house?
Mortgage rates are sky-high, inventory is low, and prices are still elevated from their pandemic spikes — making it a less-than-ideal time to buy. “Homebuyers and renters hoping for financial relief in 2023 are likely to be disappointed,” writes Clare Trapasso for Realtor.com.
