Skip to main content

Article Authored by Bob Bemis
Original Article Featured in PCMLS Monthly

Mortgage rates dropped at the fastest clip in 40 years last week, falling from 7.08 percent to 6.61 percent on recent positive news about inflation, according to a survey released earlier this month by mortgage giant Freddie Mac. This dip in rates boosted buyer purchasing power by $12,000. So, although sales have recently slowed, if rates continue to improve, they may very well pick right back up again. A year ago, at this time, the 30-year FRM averaged 3.10 percent.

Conflicting price predictions for 2023.

NAR Chief Economist Lawrence Yun predicted home prices would rise slightly and sales will dip in 2023 before making a comeback in 2024. Yun was addressing the Residential Economics Issues forum at the annual NAR conference in Orlando. ,

Yun predicted that 2022 would end with home sales down 15 percent year over year and further decline 7 percent in 2023 before rising 10 percent in 2024. He also forecast that home prices in 2022 would be up 10 percent year over year, increase a slight 1 percent in 2023 and then jump 5 percent in 2024.

That means a “strong rebound” in 2024, according to Yun.

The forecasts assume that mortgage rates will hover around 7 percent after having potentially topped out earlier in the week on news of lower-than-expected inflation.

Yun’s forecast is in contrast to predictions from Fannie Mae, which anticipate that home prices will fall 1.5 percent and home sales will drop 21 percent in 2023. Such predictions must also be taken with a certain measure of salt. For example, a year ago Yun predicted that in 2022 home sales would dip 1.7 percent and home prices would fall 2.8 percent.

On the other hand(s)

Consulting firm KPMG is predicting a 15% drop in home prices in 2023, blaming the fed interest rate increase and rising mortgage rates for the slowdown.

“It was a pandemic-induced [housing] bubble, which was stoked by work-from-home migration trends: High-wage workers going to lower second tier middle markets for more space,” said Diane Swonk, chief economist at KPMG. “We went to an extreme on WFH [-spurred housing demand], but it has pretty much abruptly ended. It is part of the reason I think you’re seeing housing prices fall as well. The local incomes don’t support a lot of these home values.”

“Once you start the process of prices falling nationally, there is a self-fulfilling momentum to it because no one wants to catch a falling knife,” Swonk says. “We’re easily going to see large double-digit declines. I think 15% next year is very conservative. We’re already turning.”

Morgan Stanley, basing its prediction on the lagging Case-Shiller Home Price index, foresees a 4% year-over-year drop by the end of 2022. “But when it is considered that the Case-Shiller index was up 8.9% during the first six months of 2022, that means Morgan Stanley expects US home prices to decline by about 5% in the second half— This also includes a decline of 1.3% between June and August. of 2022.

The improvement in house prices will not stop here. Morgan Stanley expects US home prices as measured by the Case-Shiller index to decline another 4% in 2023. Overall, the Wall Street bank expects home prices to decline by about 10% between June 2022 and the 2024 low. (Earlier, Morgan Stanley was forecasting a 7% drop in US home prices from the peak down).

Tie Breaker?

Martin Gardner, chief economist for Windermere, agrees with Mr. Yun predicting “While I expect year-over-year price declines in 2023, I don’t believe there will be a systemic drop in home values. Furthermore, as financing costs start to pull back in 2023, I expect that will allow prices to resume their long-term average pace of growth.”

Among Mr. Gardner’s other predictions for 2023 are:

  • Mortgage rates will drop
  • Inventory will grow very slowly
  • Asking prices will drop as sellers become more realistic
  • New construction activity unlikely to increase

You can read Martin’s detailed report at:

What about here in Utah?

Looking ahead to 2023 and what it will bring to the housing market, two of Utah’s leading housing experts are respectfully disagreeing with each other. The researchers — Jim Wood and Dejan Eskic, both from the University of Utah’s Kem C. Gardner Institute —made differing predictions about 2023 at a recent housing event hosted by Ivory Homes. They both expect the market to enter a correction that will persist into 2023 thanks to the Federal Reserve’s aggressive rate hikes to combat inflation. The question is, how far will that correction run and what will it mean for home prices in 2023?

Eskic has a more bearish outlook. He’s predicting Utah home prices will drop 9% year over year in 2023. From peak-to-trough, with the peak being May 2022, he expects prices to decline by a percentage somewhere in the mid to low teens, depending on what happens with interest rates over coming months.

Wood said he was a “little bit more optimistic,” predicting minor blips that will stabilize into the green after only a few quarters. “I think buyers will adjust, for one thing,” Wood said, pointing to a chart that he said showed “it’s very rare in Utah for housing prices to decline.” Therefore, Wood is predicting “a couple of quarters” in 2023, with home prices likely the “most vulnerable” in the first and second quarter of the year. “But by the end of the year, we’ll stabilize and we’ll be flat,” Wood said.

Market is slowing

NAR economists report pending home sales fell again in October for the fifth consecutive month.

The Pending Home Sales Index (PHSI)*,, a forward-looking indicator of home sales based on contract signings, sank 4.6% to 77.1 in October. Year-over-year, pending transactions slipped by 37.0%. An index of 100 is equal to the level of contract activity in 2001. “The upcoming months should see a return of buyers, as mortgage rates appear to have already peaked and have been coming down since mid-November.”

Do Price Reductions shorten market time?

This question came from one of our long-time readers: Is there a correlation between price decreases and market time? If you drop the price, does the property sell quicker? Glad you asked.

Post hoc ergo propter hoc – After it, therefore because of it.

Just because something happened (property sells) after something else (price reduced), doesn’t mean the latter event was caused by the prior one. (Also the best West Wing episode EVER.)

Looking at our Residential sold listings for 2022 (through 10/31) there were 1,854 with sale prices reported.

  • 1,366 that had no price reduction during the life of the listing. The average days on market were 18.1 days.
  • 488 listings had at least one price reduction while active. The average days on market were 117.4 days.

Even if we removed from the first group those with 0, 1 or 2 days on market (many Listed and Pended the same day, or darned close to it), the average was 29.8 days.

That might lead one to think that a price reduction increased the time on the market. Actually, I think it was the other way around. Price reductions occurred for those listings that were languishing on the market, not showing, not moving, not drawing any offers, so they reduced the price.

So, do price reductions cause faster sales? No! Long Days on Market cause price reductions.