What home prices will look like in 2023, according to Fannie Mae

Homebuyers just got more bad news: In January, 70% of homes for sale ended up in a bidding war. That’s the highest rate on record. Simply put: So far, 2022 hasn’t delivered any relief for home shoppers.

Heading into 2022, there was a broad consensus in the real estate industry that home price growth would decelerate significantly this year. But just over two months into the new year, some of those same firms are walking back their 2022 forecasts. Zillow was forecasting that home price growth—which was up 18.8% between December 2020 and December 2021—would decelerate to 11% growth this year. Then last month, Zillow revised that rate up to 17.3%.

Zillow isn’t alone: Fannie Mae just became the latest real estate firm to shift up its 2022 forecast. Last year, Fannie Mae predicted that the median existing home price would climb 7.9% this year. Now, Fannie Mae says the median existing home price in 2022 will jump from $355,000 to $384,000. That would come out to an 11.2% year-over-year price jump.

If home prices do rise another 11.2%, it would mark a deceleration from the current growth rate. However, that would hardly represent relief for home shoppers. After all, the typical raise that corporate America plans to dole out this year is only 3.9%. But Fannie Mae does still think relief will come, it just won’t happen until 2023. Next year, Fannie Mae projects home prices will rise 4.2%—with the median existing home price jumping to $395,000.

Why are 2022 forecasts suddenly getting revised upward? It boils down to the lack of homes for sale.

For much of the pandemic, the underlying issue in the housing market has been a lack of inventory. A demographic wave of first-time millennial homebuyers, enticed by pandemic-induced low mortgage rates, jumped into the market and dried up inventory. Still, the inventory problem was supposed to ease a bit this year. Instead of rising, however, inventory levels actually fell further—which has only intensified the housing boom.

That should change by next year. Already, mortgage rates are spiking as an inflation-concerned Federal Reserve hints at looming rate hikes. Rising mortgage rates, of course, cause monthly payments on new mortgages to also rise. Those higher mortgage payments, coupled with already astronomical prices, should pressure more buyers to back off. When that happens, home price growth could finally begin to normalize. Or at least that’s what Fannie Mae believes.

“The effect of buyers being priced out should mean fewer bidding wars and slower house price appreciation,” wrote Fannie Mae economists in their latest outlook.