As high mortgage rates, albeit easing in recent weeks, keep housing costs elevated and stop people from moving, home sales are expected to plunge to their lowest level in over a decade in 2023, real estate brokerage Redfin predicted in a recent report .
Moreover, Redfin sees home sales sinking about 16% next year to 4.3M, the lowest level since 2011, as a number of affordability challenges such as high mortgage rates, home prices, stubborn inflation and growing recession concerns force prospective homebuyers to stay inactive. That'd be followed by a slow recovery in the back half of 2023, it noted. Bear in mind it's tricky to determine how bad the current housing slowdown will get as demand for homes has dropped, while supply is still tight.
Existing home sales dropped for the ninth straight month in October. Note that the Federal Reserve started in March to embrace what has become its most aggressive tightening cycle since the 1980s to get control of inflation, putting an end to the real-estate boom driven by the Covid-19 pandemic and ultra low interest rates.
For 2023, mortgage rates will also continue to retreat at a gradual pace. The 30-year fixed-rate mortgage averaged 6.33% for the week ending December 8, down from 6.49% in the prior week, but up from just 3.10% in the same period a year before. By the end of 2023, the long-term mortgage rate is seen to dip back to around 5.8%, the company said, in a move that would save homebuyers an average of $150 a month on a $400K home.
Mortgage REITs: Annaly Capital Management ( NYSE: NLY ), AGNC Investment ( NASDAQ: AGNC ), Chimera Investment ( NYSE: CIM ), Two Harbors Investment ( NYSE: TWO ), Orchid Island Capital ( NYSE: ORC ) and New York Mortgage Trust ( NASDAQ: NYMT ).
While annual declines in home prices -- which remain more expensive than it was pre-pandemic -- have yet to take effect, Redfin expects median U.S. home sales prices to slide around 4% to $368K next year. That would mark the first Y/Y slump since 2012.
"That’s due to elevated rates and final sale prices starting to reflect homes that went under contract in late 2022. Prices would fall more if not for a lack of homes for sale," it explained, adding that a decline in new listings will likely occur through most of 2023, keeping inventory historically low and preventing prices from crashing.
You guessed it. U.S. rents will slide, too. Redfin anticipates asking rents to post a small annual decline by mid-2023, partly driven by increasing rental supply. The rise in supply "has already led to an uptick in vacant units in apartment buildings," the company said.
Apartment REITs: Equity Residential ( NYSE: EQR ), Independence Realty Trust ( NYSE: IRT ), AvalonBay Communities ( NYSE: AVB ), Camden Property Trust ( NYSE: CPT ), Apartment Income REIT ( NYSE: AIRC ) and Veris Residential ( NYSE: VRE ).
For homebuilders, multifamily rentals will be in focus in 2023, Redfin said, while calling for Y/Y declines of roughly 25% in building permits and housing starts into next year.
"Builders will back off most from building new single-family homes," the report said. "Construction of single-family homes surged during the pandemic, which means builders need to offload the homes they have on hand without adding more supply to limit their financial losses."
Homebuilder stocks: D.R. Horton ( NYSE: DHI ), HB Home ( NYSE: KBH ), PulteGroup ( NYSE: PHM ), Toll Brothers ( NYSE: TOL ), Lennar ( NYSE: LEN ), Beazer Homes ( NYSE: BZH ), Tri Pointe Homes ( NYSE: TPH ) and NVR ( NYSE: NVR ).
Previously, (Dec. 9) consumer sentiment bounced somewhat in December, year-ahead inflation expectations improved .
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Home sales set to drop to lowest level since 2011, Redfin predicts