Experts believe that the housing market is currently in the midst of a correction after the past couple of years saw soaring mortgage rates and heavy inflation, as well as major increases in housing prices.
Though there have been warnings that the housing market is headed for a crash, some people have cast doubt on whether the market adjustments will be that severe. Economists told Newsweek that a crash is consistent with lots of foreclosures and people losing their homes, while a correction is a period of home price growth followed by some price declines.
During a correction, there is no actual crisis in terms of foreclosures or people being forced to sell at a loss, according to Lawrence Yun, chief economist at the National Association of Realtors.
But there may be some parts of the United States that experience especially high price drops during this correction, projected to last through at least a portion of 2023.
Earlier this month, the real estate brokerage Redfin released its expectations for the housing market in 2023. Redfin expects housing prices to drop the most in cities like Austin, Texas; Boise, Idaho; and Phoenix, Arizona. These were all COVID-19 “pandemic migration hotspots” that saw hefty price increases over the last two years, leaving considerable room for prices to drop, according to Redfin.
Redfin’s prediction also noted that expensive cities on the West Coast of the U.S. will likely see large price declines next year because of struggling technology stocks and the transition to remote work, which has pushed many people out of those markets.
The West Coast city of San Francisco, California might be a prime example. Lawrence Yun, the chief economist at the National Association of Realtors, told Newsweek that he believes there will be “essentially no change” next year in the national median price for homes. This means that half of the country may see some slight gains in housing prices and the other half may see some slight declines.
Cities like San Francisco may be the exceptions to this rule and experience comparatively high price drops, such as 15 percent, “just because it’s just so expensive,” Yun added.
San Francisco is frequently included on lists of the top 10 most expensive cities in the U.S., which may take different factors into account or use different methods in their compilation. An Investopedia list from June 2021 placed the city in the third spot, coming in behind New York City’s Manhattan borough and Honolulu, Hawaii, respectively. Another list created by ConsumerAffairs placed San Francisco in second place behind San Jose, California.
Yun said that the “big West Coast markets are vulnerable to some declines,” listing cities like Los Angeles, San Diego, Portland and Seattle in addition to San Francisco.
“In addition, the markets that experienced a fast run-up in home prices and with rapid job growth are more difficult to call,” Yun said. “Declines in prices in Austin, Salt Lake City, Boise, Miami and Nashville come to mind. Price declines could happen due to relative unaffordability in their local market or may not happen because of strong job additions. The top 10 markets will most certainly see a price gain, albeit moderately, due to better affordability and strong job gains.”
In its 2023 predictions, Redfin also listed several metropolitan areas where it expects markets to remain relatively stable as the overall market cools. These areas include Lake County, Illinois; Chicago, Illinois; Milwaukee, Wisconsin; Albany, New York; and Baltimore, Maryland.