Bright MLS Forecast Predicts Housing Market Correction Through 2023 With a Risk of Price Declines of 10% or More in Some Markets

After a 2½-year free-for-all where homes commanded multiple offers well above asking and prices racked up double-digit gains, the U.S. housing market will reset in 2023, according to the Bright MLS 2023 Housing Market Forecast released today. However, unlike the 2008 housing market meltdown that sent prices plummeting and led to record-high foreclosures, today’s market is in a much better position to withstand a market correction.

“As demand has stalled and price expectations are being adjusted, home prices in most local markets will be coming down from their pandemic peaks. But 2023 is not 2008, when home prices fell by 30% or more in some places due to a perfect storm of loose credit standards, a surge in subprime lending, an oversupply of homes and rising unemployment. The situation today is much different—lending standards are much stricter than they were 15 years ago, supply remains limited and employment is strong,” said Dr. Lisa Sturtevant, Bright MLS Chief Economist. “Millennials, many of whom are at peak first-time homebuying ages, will fuel strong demand throughout 2023. The challenge is that there will be too few homes available to meet that demand and high home prices will still make affordability a challenge, particularly for first-time buyers.”

Although lower, more predictable mortgage rates and favorable demographics will support greater housing demand in 2023, the Bright MLS forecast expects 2023 home sales to fall to their lowest level (4.87 million) in nine years as inventory remains low, leaving prospective homebuyers with limited options. Many homeowners have the advantage of a sub-3% mortgage rate, leaving little incentive to list in the coming year as average rates will remain around 6%. The forecasted  slowdown in sales also reflects the fact that some homebuyers pushed up the timing of their home purchase to capitalize on historically low mortgage rates, removing a segment of potential buyers from the 2023 mix.

After ending 2022 at around 6.5%, Bright expects mortgage rates to fall in 2023, but they will not come down as quickly as they rose. Rates will reach 6% by the end of 2023, still much higher than they have been in recent years, but more in line with pre-Great Recession levels.

After two-plus years of double-digit price growth, overall home prices will stabilize in 2023. However, home shoppers should not expect to find too many bargains. Low inventory and solid demand will result in the median home price nationally rising by 0.3% year-over-year in 2023.

*Average at year-end
pp=percentage point

In 2023, there will be a lot of variability in housing markets across the U.S. Home prices in most places have already fallen from their pandemic peaks, and further price corrections are expected. But it is important to pay attention to local market conditions because some places are at greater risk than others for significant price declines. The metros most at risk for steeper price corrections are those where:

• Home prices grew the fastest during the pandemic. Nationally, the median home price increased by an average of 10% annually between 2019 and 2022. As remarkable as the national high price growth has been, there are some metro areas where median asking prices grew even faster: Austin, Texas (+53%); Tampa, Fla. (+52%) and Miami (+50%).
  
  
• Inventory has increased quickly. As supply expands, there is a greater risk of prices coming down. Over the past year, the number of active listings has increased the most in Phoenix (+174%); Raleigh, N.C. (+167%) and Nashville, Tenn. (+145%).
  
  
• Sellers are dropping list prices. Some sellers have already begun to adjust their price expectations in this new market environment, pushing median list prices lower compared to a year ago, which will lead to declines in sold prices. The biggest year-over-year declines in median list prices are in New Orleans (-3%); Pittsburgh (-2%) and Birmingham, Ala. (-2%).
  
  
• Affordability is a greater challenge. As home prices escalated, housing affordability became a bigger challenge for homebuyers. The least affordable markets in the U.S. are at greater risk for seeing more significant price declines in 2023. The most unaffordable market in the U.S. (among the 50 largest metro areas) is Los Angeles, where the median home price is 11 times the median household income. Other very unaffordable markets include San Jose, Calif.; and San Diego (10 times) and San Francisco (nine times).
  
  
• The labor market is weaker. Across most of the U.S., the labor market is still strong. However, if the employment picture sours, there is a greater risk of weaker housing market activity and a decline in home prices. The metro areas with the highest unemployment rates—and therefore the greatest risk of home price declines—include Las Vegas (5.3%); Cleveland (4.5%) and Chicago (4.4%) in 2023.

Based on the factors above, Las Vegas; Riverside–San Bernardino, Calif.; Phoenix; Austin, Texas and Los Angeles top Bright’s list of markets where prices could see the most significant home price declines in 2023.

1. Las Vegas – The median home price rose 41% between 2019 and 2022, faster than the national average. Inventory has nearly doubled in the metro area, rising 89% between October 2021 and October 2022. The median home price is now seven times the median household income, and  while still relatively low, at 5.3%, the region’s unemployment rate is the highest among the nation’s 50 largest metro areas. In 2023, the median home price in Las Vegas is expected to decline 20% year-over-year.
   
   
2. Riverside–San Bernardino – The median home price is about 7.5 times the median household income, making the Riverside–San Bernardino metro area one of the least affordable markets in the U.S. Over the past year, inventory has increased by 80%. Home prices are up more than 40% over the past three years. The metro area’s unemployment rate is 3.9%, which is quite low, but is still higher than most other metro areas. Compared to 2022, the region’s median home price is expected to fall by 18%.
   
   
3. Phoenix – Supply has surged in the Phoenix metro area. The number of active listings in Phoenix is up 174% compared to a year ago. The median list price in the region has been flat while it has risen in most other metro areas. Home prices did not rise as fast as they did in other regions, but the Phoenix metro area’s unemployment rate is higher than most other metro area unemployment rates. In Phoenix, the median home price in 2023 is forecasted to be 17% lower than it was in 2022.
4. Austin – The Austin housing market has been on fire in recent years, and the median home price in the region increased faster than any other metro area over the past three years (+53%). The median list price in October 2022 was flat compared to a year ago. Supply is growing fast, with the number of active listings in Austin up by more than 130% compared to a year ago. The median price in Austin is projected to decline by 16% in 2023. 
   
   
5. Los Angeles – Los Angeles ranks as the least affordable among the 50 largest metro areas, with the median home price more than 11 times greater than the median household income. Home prices rose relatively modestly over the past three years (+12%), but affordability challenges and relatively high unemployment in the region sets Los Angeles up to see the median home price fall by 12% in 2023.

According to the Bright MLS forecast, the metro areas where the housing market will be strongest in 2023 are generally located in the relatively affordable Midwest.

1. Minneapolis – Minneapolis remains a relatively affordable market, with the median home price just 4.6 times the median household income. Inventory is relatively stable in the region, with the number of active listings down 2% compared to a year ago. Home prices are still rising in the region, with the median list price 16% higher than it was a year ago. At 1.9%, the metro’s unemployment rate remains the second lowest among the 50 largest metro areas. Strong economic fundamentals in the Minneapolis region will lead to rising home prices, with the median price up 11% in 2023 compared to 2022.
   
   
2. St. Louis – The median home price is less than four times the median household income. Median prices were up 25% over the past three years, far below the national average increase. Home prices continue to rise, with the median list price nearly 15% higher than a year ago. The unemployment rate is just 2.3%, lower than most other metro areas. Expect the median home price in St. Louis to rise 9% year-over-year in 2023.
   
   
3. Virginia Beach – Inventory continues to shrink in Virginia Beach, with the number of active listings down 11% compared to a year ago. Prices in the region grew by 24% over the past three years. The region is relatively affordable, with a home price-to-income ratio of 4.9. List prices are still rising quickly, up nearly 20% compared to a year ago. In the Virginia Beach market, the median home price is expected to rise by 8% in 2023.
   
   
4. Louisville – Home prices rose less than the national average, with a 17.8% gain in prices over the past three years. List prices are still up; the median list price in the Louisville metro area was up 15.6% compared to a year ago. Inventory is rising, though not by as much as many other metro areas. As a result, the median home price in Louisville is expected to increase by 6% in 2023.
   
   
5. Indianapolis – Inventory has increased by more than 50% over the past year, but price growth has been relatively modest in the Indianapolis metro area. The median home price in the region is just 4.2 times the median household income. List prices are still rising, with the median list price up 9% compared to a year ago. The unemployment rate in the metro area was just 2.1%, lower than almost every other metro area. In 2023, the median home price in the Indianapolis metro area is forecasted to increase by 4% compared to 2022.

To view Bright’s full national housing forecast, which includes a ranking of the 50 largest U.S. metro risks of price declines, please visit 2023 Housing Market Outlook: What Kind of Correction?

Bright’s forecast is based on economic data from the U.S. Bureau of Labor Statistics and the U.S. Census Bureau, as well as metro area housing market data compiled by Realtor.com and available at https://www.realtor.com/research/data/.

Bright MLS was founded in 2016 as a collaboration between 43 visionary associations and two of the nation’s most prominent MLSs to transform what an MLS is and what it does, so real estate pros and the people they serve can thrive today and into our data-driven future through an open, clear and competitive housing market for all. Bright is proud to be the source of truth for comprehensive real estate data in the Mid-Atlantic, with market intelligence currently covering six states (Delaware, Maryland, New Jersey, Pennsylvania, Virginia, West Virginia) and the District of Columbia. Bright MLS’s innovative tool library—both created and curated—provides services and award-winning support to well over 100k real estate professionals, enabling their delivery on the promise of home to over half a million home buyers and sellers monthly. In 2021, Bright subscribers facilitated $141B in real estate transactions through the company’s platform. Learn more at Bright MLS.com.

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