Prediction time. This is when Crazy Uncle Keith makes some calls for 2023 and gets some right, some wrong, and makes fun of himself at the end of the year for thinking he could predict the future. Click here to see how my predictions turned out in 2022. I have way less confidence this year, but here they are anyway:
Recession: This really is the first big domino you have to decide on when thinking about 2023. Will there be one (most say yes), and if so, will it be a “hard” or “soft” landing? I won’t lie, I have been back and forth on this one. Maybe depending on the quality and strength of my coffee, or the positive or negative nature of the last report I’ve looked at. This is pretty hard to call, but I guess that is the point of predictions, right?
So (drum roll, please)… I am going to officially be in the “soft landing” camp (but I’m like camped on the edge of the camp, near the road to “hard landing camp” and I’m only ¾ unpacked).
My reasoning for this is this: there are parts of the economy that are really healthy. Yes, inflation is bananas and hard to get a handle on, but the U.S. consumer (so far) is amazingly resilient and still spending. Jobs are still really strong, and basically, if you’re outside of the technology and real estate industries, it hasn’t been a terrible last six months. Sure, Wall Street has been rough, but that doesn’t seem to have spilled over into Main Street. So there is a real chance that we could have a recession, but it will be somewhat mild.
I do think inflation, high-interest rates, and other factors will make the recovery pretty tepid though. So we’re going to sort of muddle through 2023. Worse in the beginning, better in the end, but none of it feeling great. Overall, it doesn’t feel like the “hard landing” end of days.
Interest Rates: Now that I am firmly on the fence on there being a recession, let’s talk interest rates. I read one forecast that said “interest rates could reach 9%” – Holy ClickBait Batman. Look, could they? Of course. Is it likely? No. I actually think we’re more likely to see a downward trend in rates in 2023 than we are to see 9%.
My call is rates will be volatile as we head into recession and will bounce around, but the overall trend rate will be flat to down. This will start to bring buyers back into the marketplace for residential resale. A huge part of the slowdown in real estate over the last six months was the pace of change of home price and interest rates. The pace of change made homebuyers press the pause button through what is normally our busiest time (summer) and then we had our normal seasonality during the holidays slow it down even more. We basically missed six months of transaction volume.
Buyer Sentiment: About six months ago, due to the pace of change we talked about above, buyers said, “I need a safe place to sit and think a while about this,” and they just backed away from the market. Sellers did the same thing since they didn’t want to realize that the market had shifted and maybe they didn’t have the leverage they thought they did. It is the only time in my career that I remember both buyers and sellers saying, “Nah… not right now.” Hence the massive downward pressure on real estate units (see below).
We’re starting to see buyers in early January come out of their hibernation. I wish I could give my forecast later in February since I think the next 30-45 days will tell us a lot about the market, but I will go on record and say that buyer sentiment will be higher this year than it was at the end of last year. While not as high as it was at the beginning of last year, buyers will come back and there could even be some pent-up demand on that side of things.
Real Estate Values/Units: There will be a continued decline in home sales (units) and also a decline in home price, but not the train wreck that will be reported. I think real estate entered a sector-wide recession about six months ago. Interest rates (see above) doubling in six months will have that effect. There are, for sure, some of those buyers who will never come back into the marketplace. We normally (on average) do 5.3 million existing residential housing transactions a year. It was 4.3 million in 2022. Most of the reports I am seeing have it even lower in 2023. Most are around 4 million. Maybe I am crazy (that is my nickname, Crazy Uncle Keith) but I actually think it will be higher than 4 million so long as rates stay where they are or lower. If rates go back up over 7% then yeah… probably that lower number. Maybe I’m an optimist, or maybe I got a good night’s sleep, but I will say we come in at about 4.3 million again. Fingers crossed.
DOJ/NAR Lawsuit: There is a lot of noise, saber rattling, and fear, but zero clarity. I am in no way dismissing the importance of the Department of Justice and National Association of REALTORS® lawsuit, all I am saying is that there will be very little clarity in 2023. These things take years to work themselves through the court system. There is a big case in October in Missouri that will be a leading indicator of what will happen. I do understand why there are so many articles written (even I’m doing it now) on this topic, but I also think that, as an industry, us “boots on the ground” should focus on what we can control. That is serving clients at the highest possible level and continuing to inform, nurture, and serve the humans who are buying and selling properties.
So there ya have it. Compared to a lot of the industry, I am actually pretty rosey for 2023. It hinges on rates staying low and the recession being somewhat mild, but I really think those are two realistic possibilities. Like I said, this is the hardest one I’ve had to call in my career. I’m very prepared to write a “welp… I sure missed these in 2023” in December, and while all these forecasts, predictions, and prognostications are fun, none of it really is real. Zero percent of us had “pandemic” on our bingo card a few years ago. Inflation wasn’t even in my predictions for 2022 (probably should have been), so there will be things we didn’t think of, know of, or focus on that will rear their head in 2023.
What matters most is this: your local market is dictated much more by local trends than national trends, more so now than usual. The parts of the country that had huge run-ups (Austin, for example) are also now feeling pretty significant downward pressure (San Jose, for example), and it hurts. Others are still seeing values rise. So now, more than ever, you’ve got to talk to, listen to, and develop a relationship with a local expert who can really advise you.