Real estate market predictions 2023: How far will Utah home prices fall?

Looking ahead to 2023 and what it will bring to the housing market, two of Utah’s leading real estate experts respectfully disagree.

While both agree the market is in the midst of a price correction after two years of runaway demand pandemic housing frenzythey have different outlooks for just how deep the price correction will run next year.

The researchers – Jim Wood and Dejan Eskic, both from the University of Utah’s Kem C. Gardner Institute – had a friendly debate Friday during the annual private gathering Gading Imah of hundreds of homebuilders and other industry partners from around the country. The discussion between Eskic and Wood was moderated by Clark Ivory, CEO of Ivory Homes, which is Utah’s largest homebuilder.

The slate of speakers are all trying to help bring clarity to the market which they say is generally full of “volatility” and “uncertainty” because the mortgage rate, some days hovering around 7%, has attracted buyers and has quickly stopped what. It has been more than two years of blazing hot market.

Real estate market predictions 2023

Neither Wood nor Eskic predicted a crash, like the 2007 crash that sent the global economy plunging into the Great Recession. They both believe Utah’s job market is strong enough to avoid foreclosure and that housing demand will continue due to the state’s rapid growth and pervasive home shortage.

However, they expect the market to enter a correction that will persist into 2023 thanks to the Federal Reserve’s aggressive hikes to combat inflation. They said it will pose a challenge, especially for homebuilders, but also rebalance the market priced some two-thirds of Utahns out of affording the median priced home.

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Homes at Big Willow Creek Estates are under construction in Draper on Friday, November 11, 2022.

Laura Seitz, Deseret News

The question is, how far will the correction go and what will it mean for house prices in 2023? That’s where it gets tough.

“I call it ‘the great debate,'” Ivory said.

How much will Utah home prices drop?

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

So far, Utah home prices are still rising every year, but they have been falling over 9% from their peak in Mayaccording to Eskic.

“When we look at how many of us have peaked earlier this year, I think we’ll start to see negative readings in late winter, early spring years,” Eskic said.

Wood said he was “a little bit more optimistic,” predicting minor blips that would balance out on the green after only a few feet.

“I think buyers will adjust, for one thing,” Wood said, pointing to a chart that he said shows “it’s very rare in Utah for housing prices to go down.”

“We always have a deceleration in the rate of increase as the cycle plays itself out. But the decline in prices is unusual,” said Wood. He noted in the early 1980s there were “several (quarters) of periods where prices actually fell” before hitting a positive trajectory soon after.

However, during the Great Recession, prices declined for years before accelerating again. It’s also a time when the national economy and Utah are facing a struggling job market, Wood noted.

“Right now, we still have a very strong job market, and we expect the growth rate to slow down a little bit in 2023 in jobs, but I still think it’s going to be a very strong market,” Wood said. “So unless we have a serious recession, I think prices have some support given our economy.”

Wood also said that even if home prices drop 10%, they “won’t cause a wave of foreclosures,” unlike what happened in 2008, “which just brought down prices. We don’t have that.

Therefore, Wood predicts “several quarters” in 2023, with house prices likely to be “most vulnerable” in the first and second quarters of the year.

“But at the end of the year, we’ll break even and we’ll be flat,” Wood said.

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Homes at Big Willow Creek Estates are under construction in Draper on Friday, November 11, 2022.

Laura Seitz, Deseret News

‘The Great Debate’

While Eskic said he agrees with Wood about Utah’s strong job market, “but we operate in a different environment because of prices and rates.”

Eskic said it all comes down to affordability.

“We’re going back to the ’70s, for example,” Eskic said. “If you divide the price of your housing by your annual income, it’s 2.6. Now, it’s close to 5. So from an affordability point of view, I think it will keep the market from accelerating again to have a more positive price appreciation.

Wood said “that’s a good point,” but added the 70s and early 80s saw interest rates that rose 18%. “Look at real estate prices, they’re close. They’re not going down.

But housing costs are not as high as they were back then, Eskic said.

“Yeah, that’s a valid point,” Wood replied, drawing laughter from the crowd. “But, we had a recession then, Dejan, we had a recession. I don’t think we’ll get a recession now, in Utah.

Eskic, smiling, said he and Wood should make a bet on stage. “A year from now … everyone who is right will have to shave their beards.”

Both bearded men chuckled, accompanied by laughter and applause from the audience.

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