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Home Prices Falling More Than Experts Forecast 2023

In late 2022 housing experts underestimated the current real estate market. Now they claim home prices falling more than experts forecast in 2023.

Home Prices Falling More Than Experts Forecast 2023


  • Morgan Stanley and Moody’s just revised their housing forecast to a 10% decline in 2023. That's a 2.3% increase from their last forecasts!

  • Find out why home prices are falling.

  • Why did the Federal Reserve raise interest rates?

  • Home sellers and homebuilders will lower their prices in 2023.

  • Could home prices still rise?

  • What could cause housing prices to fall by 20%?

  • Take advantage of San Diego home prices falling in 2022 into 2023.

Home Prices Falling More Than Experts Forecast 2023

Morgan Stanley recently revised their housing forecast of a 7% decline in 2023 to 10%. This is due to higher unemployment across America. They even hint at prices falling up to 20%.

Last October, Capital Economics predicted an 8% price drop. Then, Moody’s Analytics adjusted their forecast of home prices falling by 10% in 2023. Also, Freddie Mac changed its prediction of a rise in prices by 4% in 2023 to a decline.

These abrupt changes go to show how unpredictable the 2023 housing market decline will be. Yet, they now all agree that 2023 will see home prices falling nationwide.

Why Are Home Prices Falling?

It all began last September when the Federal Reserve (Fed) raised interest rates for bank loans which triggered home mortgage rates to rise. Higher mortgage rates mean fewer buyers qualifying for mortgages and others unwilling to pay higher monthly payments.

The New York Times recently quoted Fed Chairman Jerome Powell predicting further interest rate increases but in smaller amounts in the future.

Why is the Fed Raising Interest Rates?

fed- interest rates

To combat rising inflation caused by the last few years where home price growth outpaced income growth in the U.S. When that happens, home buyers can’t afford what they want. In mid-2020, the monthly payment for a 30-year fixed mortgage for a median-priced home cost $1,120. Now, it costs $2,440 amounting to a 45% increase.

Looking at the increase from a household earning $75,000 a year, it’s a difference from a family spending 18% of income on housing to nearly 40%. Anything over 30% is considered too high. This becomes an unaffordable housing issue.

So, the Fed jumped in to increase interest rates to fight inflation caused by unaffordable housing. Raising interest rates forces banks to charge higher interest for consumer loans. This triggers fewer consumers to take out loans to reduce nationwide debt. High debt leads to an economic recession which hurts everyone.

The Fed hopes that higher mortgage rates reduce the number of mortgage loans creating fewer buyers in debt. Also, fewer buyers force sellers to lower their home sales prices. Thus, in time the nation will again experience home affordability good for the economy.

It’s working! A recent S&P/Case-Shiller U.S. National Home Price Index shows that home prices began declining for the first time since 2012.

The Future: Eventually, once homes become affordable and inflation tamed the Fed will reduce interest rates allowing home sellers to raise prices again.

Read our recent article about how real estate protects during inflation.

Homebuilders Expected to Discount Prices in 2023

homebuilders - discount prices

The Washington Post recently reported that available housing inventory is climbing ahead of expectations creating an inventory glut that will force builders to lower their prices.

According to Fannie Mae, new homes coming onto the market in early 2023 will force homebuilders to lower their prices due to the small number of buyers.

Traditionally, the beginning of each year sees new home listings as sellers want to close by summer to move when their kids are not in school. Likewise, buyers want to preview homes during spring to buy and move in before the school year starts.

Soon: Adding completed new home construction may create a high housing inventory with few buyers. The law of supply and demand means forcing sellers to discount prices.

This plays into the Fed's plans to force home prices to fall to combat rising inflation.

Can Home Prices Still Rise?

rates can still rise

Yes, as long as the current mortgage rate of around 7% remains or comes down, some experts believe home prices could rise in 2023.

Yet, while inflation slowed a bit in the past few months, it’s still too high, According to the U.S. Labor Department data published November 10, the current U.S. inflation rate is 7.7%. This is still too high for the Fed.

So, expect more interest rate hikes by the Fed over the next few months.

What Can Cause Housing Prices to Fall 20%?

According to Morgan Stanley, home prices decreasing by 20% in 2023 could only happen if unemployment drastically increases causing a nationwide recession.

Yet, according to Fox5 News San Diego on December 2, 2022, our national economy added 263,000 jobs in November holding unemployment at a steady 3.7 percent rate.

Thus, no one is predicting a housing market crash like in 2008.

Unlike in 2008, mortgage lenders use stricter credit standards and borrowers today are less likely to default. During the pandemic homeowners built up their wealth with large gains in home equity and increased personal savings protecting them from financial hardship.

Currently, we are experiencing a “housing correction” rather than a “housing crash”. For an explanation of the difference read this article: “How to Invest During the Housing Correction”.

San Diego Home Prices Falling 2022 into 2023

Not only is this good news for San Diego home buyers but also housing investors.

Relocating to San Diego in 2023 offers unique benefits for home buyers. Take advantage of falling home prices.

Bigger Pockets on December 6, 2022, published an article describing the San Diego real estate market stats and trends for 2022. There they explain these facts about San Diego:

  • Robust housing market in San Diego’s metropolitan area;

  • Growing local economy;

  • Low unemployment;

  • Significant military presence; and

  • Offers investors a stable base with strong long-term growth potential.

Stats: San Diego is the 8th largest metropolitan area in the U.S. with a population of around 3,3 million. Boasts a highly educated workforce with low poverty rates. Nearly 40% of the population holds a bachelor's degree or higher.

San Diego’s strength is its labor market being far below the national unemployment rate.

Its diversified economy enjoys strong representation in:

  • Education;

  • Hospitality;

  • Government;

  • Trade; and

  • Professional services.

Another Bigger Pockets article published on December 3, 2022, compares “Coast-to-Coast Markets We’d Invest in Next Year”. It recommends San Diego as being:

  • “Very resilient”;

  • “The best weather in the entire world”;

  • “It’s so nice”.

  • “If you’re a resident there, you need to be buying a property”; and

  • “You definitely should have one or a couple (rentals) if you can get it over a span of a couple of years because the appreciation will be incredible”.

Home Prices Falling More Than Experts Forecast 2023 – Conclusion

prices falling

U.S. home prices are falling more than experts forecast for 2023. We explained the reasons, summarized as:

  • Rising mortgage rates are preventing many buyers from qualifying;

  • The Fed raised bank interest rates to fight inflation;

  • Fewer buyers mean home sellers and homebuilders must lower their prices;

  • Expect more interest rate hikes by the Fed over the next few months;

  • No one is predicting a housing market crash like in 2008;

  • San Diego housing prices are also falling which is good news for buyers and investors; and

  • San Diego is a great place to invest in residential rentals.

Need a Realtor in San Diego?

You just read about falling home prices and how great San Diego is to live in and invest in housing. If you need a local Realtor who knows the market and all the neighborhoods look no further.

socal lifestyle realty

SoCal Lifestyle Realty offers experienced Realtors to help home sellers, buyers, and investors throughout San Diego County.

Contact us today to find out more about falling home prices in San Diego and how to find the best homes to live in or invest in.

Steven Rich, MBA – Guest Blogger


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