Will Home Prices Drop in 2023?
In the Midwest, the answer is no.
Why are Home Prices Going up Even Though Mortgage Rates are Climbing?
Even though rates have climbed in 2022 and 2023, there are still more buyers than sellers, and according to to statista.com, the trend is likely to continue.
We are seeing more multiple-offer situations, even though rates continue to climb. In larger markets, we have seen a pullback in 2022 from excessive increases during covid. The macrotrend is up, and it’s primarily due to supply and demand.
Simply put, there continues to be more buyers than sellers.
Supply and Demand – The Number Breakdown
There were 1.6 million new housing starts in the U.S. for 2022 and 4.4 million new listings in the US for 2022, so this is an approximate total of 6 million homes that could change hands. But unfortunately, there are more than 6 million buyers nationwide. This puts the power in the seller’s hands.
How Much Have Home Prices Increased?
According to Zillow, in 2017, the average Midwest major city had an average home price of $150,000-$170,000. In 2022, the average home price had gone up to $225,000 to $250,000 — an increase of almost 50%.
When Will Home Prices Stop Going Up So Much?
There are approximately 85 million single-family homes in the U.S. According to statista.com, there are approximately 50 million people in the U.S. over the age of 65 – 80% of whom are homeowners. After married couples are considered, it amounts to about 25 million households owned by this age group.
The average life expectancy in the U.S. is approximately 75 years. It will not be until people 65 and older start passing on or selling more that we can expect the supply of homes to offset the demand.
So, the rough answer is that we can expect home prices to stop increasing sometime in the next 10 years when a large portion of the 25 million (age 65+ owned) homes start hitting the market. This is assuming no disruptive business models come to market in the meantime.
Market Updates By County – First Quarter 2023