Zillow: Expect a Buyers’ Market Before Year-End 2023

Sky-high mortgage costs are driving down competition among home shoppers, and a buyers’ market could emerge by year-end 2023, experts surveyed by Zillow said.

The survey, Expert Panel: Expect a Buyers’ Market by 2023, also found a consensus that rent growth will outpace inflation during the next 12 months as priced-out potential home buyers exert additional pressure on the rental market.

Zillow noted home price growth, which hit record highs over the course of the pandemic, is now slowing as affordability challenges magnified by quickly rising mortgage rates push many buyers to the sidelines. Values are ticking down slightly across the U.S. and declining more steeply in some of the most expensive metros, as well as those metros that grew the fastest over the past two years.

Although home price growth has slowed, the market is far from pre-pandemic norms. Zillow’s August market report showed listings’ typical time on market, while rising, remains 11 days shorter than in 2019.  Inventory is ticking up as well, but remains down almost 42% compared to 2019. More than half of the panel–56%–said they expect a significant shift in buyers’ favor by sometime next year. Another 24% predicted that shift would come in 2024, 13% pointed to 2025 and just 8% reported they expect it after 2025.

“After the frantic rush for real estate over the past two years, buyers are finally seeing a calmer market,” said Nicole Bachaud, Senior Economist with Zillow. “Those still able to afford homeownership are quickly regaining lost leverage, but this shift to a more balanced market is still in its early stages. Home shoppers priced out of the market are in a tight spot, though, as high and rising rents could cut further into their ability to save up for a down payment.”

Inexpensive Midwest markets such as Columbus, Indianapolis and Minneapolis are the least likely to see home prices decline over the next 12 months, according to survey respondents. Fast-growing markets in the South, including Atlanta, Nashville and Charlotte, are also expected to retain their heat.

Markets projected to cool the fastest are those that saw some of the largest growth over the course of the pandemic, including Boise, Austin and Raleigh.

The panel said rent growth will likely remain strong in the short term as high home prices keep many would-be first-time buyers in the rental market. Over the next 12 months, rents are expected to grow more than inflation, the stock market and home values.