As we head into 2023, there is a lot of speculation around what the housing market will hold in the next year.
Though it’s hard to tell exactly what the market will do, the Economic Research team at Zillow has five bold predictions for the housing market in 2023. Here’s what homeowners, renters, buyers and sellers can expect.
1. The Midwest Will be a Hot Spot in the Housing Market
Last year, the Sun Belt was a popular area for American movers and buyers, with Florida markets dominating the appreciation leaderboard and areas in Tennessee, the Carolinas and Texas reaching top spots among the 100 largest metros. While Zillow expects the market heat to stay on in Florida, the company predicts that the Midwest will receive a lot of attention in 2023 with affordability being the key driver.
Mortgage costs as a share of income are still within sub-30% levels across multiple states in the Midwest, which help out first-time buyers, plus lower rents and home prices help buyers save up for a down payment. Additionally, the Midwest’s healthy inventory of listings gives more available houses to choose from and meets the consistent demand of buyers.
2. Buying with Friends & Family Members will Continue
A Zillow survey conducted in the Spring found that 18% of successful homebuyers had purchased their homes with a friend or relative and 19% of prospective buyers intended to buy with a friend or relative in the next 12 months, with affordability and qualifying for a mortgage being the main reason for buying together. Due to the rise in housing costs, Zillow expects these unconventional ways of reaching homeownership to continue in 2023.
3. The Affordability Crisis will Stabilize and Potentially Improve
While affordability will continue to be the driving force in the 2023 housing market, Zillow predicts that there is a decent chance the affordability crisis will improve and expects the market to stabilize at the very least. National home values are expected to remain relatively flat, rent growth should hew closer to historical norms and the supply of rental properties should increase at a record pace.
4. There will be a Surge in First-Time Landlords
Zillow expects that many homeowners will choose to rent out their properties in 2023 as rent prices continue to grow. The low mortgage rates of 2020 and 2021 led many people to invest in second homes, which now have high potentials to yield regular rental income above the low mortgage payment rates. Additionally, with low expectations for the stock market and less of an incentive to buy homes due to current high mortgage rates, there is good reason for homeowners to hold onto and rent out their second properties.
5. New Construction will Focus in Rentals
As prospective homebuyers find it harder to purchase a home of their own, more people are opting to rent and more units designed for multi-family living are being built. According to Zillow, the number of multi-family units to start construction each month is steadily increasing, reaching 8% up from pre-pandemic in October 2019, and multi-family permits are elevated. It is likely that this demand for rental units will also encourage homeowners to build homes that they will rent out.
Click here to read more about Zillow’s 2023 housing market predictions.
