Looking ahead to 2023 and what it will bring to the housing market, two of Utah’s leading housing experts are respectfully disagreeing with each other.
While they both agree the market is in the midst of a price correction after two years of runaway demand amid the pandemic housing frenzy, they have differing outlooks for just how deep that 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 Ivory Homes’ annual private gathering of hundreds of homebuilders and other industry partners from across the state. 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 all sought to help bring clarity to a market that they said has largely been fraught with “volatility” and “uncertainty” as mortgage rates, some days hovering around 7%, have squeezed buyers and have brought a rapid end to what had been over two years of a blazing hot market.
Housing market predictions 2023
Neither Wood nor Eskic are predicting a catastrophic, 2007-like crash that sent the global economy tumbling into the Great Recession. They’re both confident Utah’s job market is strong enough to avoid sweeping foreclosures 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 rate hikes to combat inflation. They say it will pose challenges, especially for homebuilders, but also rebalance a market that’s priced some two-thirds of Utahns out of affording the median priced home.
The question is, how far will that correction run and what will it mean for home 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’s predicting Utah home prices will drop 9% year over year in 2023. From peak-to-trough, with the peak being May 2022, he expects prices to decline by a percentage somewhere in the mid to low teens, depending on what happens with interest rates over coming months.
So far, Utah home prices are still up year over year, but they’ve so far fallen over 9% from their peak in May, according to Eskic.
“When we look at just how much we’ve peaked earlier this year, I think we’ll start seeing negative year-over-year readings late winter, early spring,” Eskic said.
Wood said he was a “little bit more optimistic,” predicting minor blips that will stabilize into the green after only a few quarters.
“I think buyers will adjust, for one thing,” Wood said, pointing to a chart that he said showed “it’s very rare in Utah for housing prices to decline.”
“We always have deceleration in the rate of increases as the cycle plays itself out. But having price declines is really unusual,” Wood said. He noted in the early 1980s there “were a few (quarterly) periods where prices actually declined” before hitting a positive trajectory soon after.
However, during the Great Recession, prices declined for years before accelerating again. That was also a time when the national economy and Utah faced a struggling job market, Wood noted.
“Now, we still have a very strong job market, and we expect the growth rate is going to come down a little bit in 2023 in jobs, but I still think it’s going to be a strong market,” Wood said. “So unless we have a real serious recession, I think prices have some support given our economy.”
Wood also said even if home prices dropped 10%, they “wouldn’t set off a wave of foreclosures,” unlike what happened in 2008, “which just pulled prices down. We don’t have that.”
Therefore, Wood is predicting “a couple of quarters” in 2023, with home prices likely the “most vulnerable” in the first and second quarter of the year.
“But by the end of the year, we’ll stabilize and we’ll be flat,” Wood said.
‘The great debate’
While Eskic said he agrees with Wood about Utah’s strong job market, “but we’re operating in a different environment because of the rates and prices.”
Eskic said it all comes down to affordability.
“We go back to the ’70s, for example,” Eskic said. “If you divided your housing price by your annual income, it was 2.6. Right now, it’s close to 5. So from that affordability perspective, I think it’s going to keep the market from accelerating back 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 hit as high as 18%. “Look at housing prices, they were sticky. They didn’t go down.”
But housing costs weren’t nearly as high back then, Eskic interjected.
“Yeah, that’s a valid point,” Wood replied, drawing laughs from the crowd. “But, we had a recession then, Dejan, we had a recession. I don’t think we’re going to get a recession now, in Utah.”
Eskic, smiling, said he and Wood should make a bet on stage. “A year from now ... whoever’s right has to shave their beard off.”
Both bearded men chuckled, along with laughs and applause from the audience.