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M R EP O RT | 37 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST ORIGINATION Mortgage Rates to Be Key in 2023 Mortgage rates will be critical in 2023, with a report predicting that relatively high rates will likely result in the slowest housing-market year since 2011. M ortgage rates will be key in 2023 according to Redfin, which is predicting that rela- tively high rates will likely result in the slowest housing-market year since 2011. Redfin's 2023 predictions forecast mortgage rates, home sales, home prices, inflation, employment, and other macroeconomic trends. This year, Redfin has made 12 separate predictions on what to expect for next year. PREDICTION 1: In 2023, Redfin expects 16% fewer existing home sales than were reported in 2022, totaling about 4.3 million units as would-be buyers pause their efforts mostly due to affordability challenges and a much-touted recession taking hold over the market early next year. According to Redfin, only those who need to move next year will do so. PREDICTION 2: By the end of 2023, Redfin expects the 30-year fixed-rate mortgage to decline to about 5.8% with an average annual rate of 6.1%. PREDICTION 3: Redfin pre- dicts median home sales prices to drop by about 4%—the first drop since 2012—to $368,000 in 2023. This is due to elevated rates and final sales prices beginning to respond to high rates which occurred in the third and fourth quarters of 2022. Prices will fall until hitting a bottom, which will create a price limit because of the still-low inventory levels. Very few homeowners are likely to see their mortgages fall underwater even with next year's anticipated price declines. That's because the homeowners who've had their home for at least a few years have fixed low mortgage payments and plentiful home equity after values skyrocketed during the pandemic. PREDICTION 4: The Midwest and Northeast will see a hous- ing boom relative to the other geographical regions due to their affordable prices and relatively robust inventory levels. PREDICTION 5: Rent will fall in 2023, with the biggest drops com- ing soon in major metropolitan areas. The rental price declines will be partly due to increasing supply, which has already led to an uptick in vacant units in apart- ment buildings. Increasing rental supply and declining prices—along with high mortgage rates, limited inventory, and other affordability barriers—mean few renters will become buyers next year. Many prospective first-time homebuy- ers may instead become move-up renters, upgrading from a small urban apartment to a larger apart- ment or a single-family rental to fit their growing families. PREDICTION 6: New construc- tion will tilt in favor of multifam- ily units in 2023 as construction of new homes may fall up to 25% if a recession comes to frui- tion. Constructing rental units, including apartment buildings and multifamily houses, will make more financial sense for builders next year, as rental demand won't fall off as much. PREDICTION 7: Redfin is pre- dicting investor activity to sink to its trough sometime next spring. Having fewer iBuyers in the market is also a factor in slowing activity. Some investors, especially newer and smaller ones, will bow out of the housing market entirely and others will slow their activity. But if inflation slows and the Fed eases up on rate hikes as ex- pected, investors will likely start buying more homes in the second half of the year, taking advantage of slightly lower home prices. PREDICTION 8: Gen Zers will continue to seek remote work and primarily continue to rent ahead of their prime homebuying years. Mid-tier cities will draw in Gen Zers due to their relative afford- ability, lifestyle option, weather, and proximity to family. PREDICTION 9: When looking at migration, Redfin expects this trend to slow in 2023 as rates keep people in their homes. PREDICTION 10: Disaster insur- ance costs will make some homes unaffordable due to rising costs. Redfin expects disaster-insurance rates to continue rising next year (and beyond), rendering housing in some areas more expensive. PREDICTION 11: More U.S. cities will look to Minneapolis, which in 2019 became the first major city to eliminate single-family- only zoning, for inspiration in keeping rental and home prices under control. Earlier this year, Minneapolis became the first metro area to see rents decline. PREDICTION 12: Following the market as a whole, buyers' agent commission will rise slightly as fewer agents broker fewer deals at lower prices.