2023 Raleigh Housing Market: Boom or Bust?

[Interested in 2024’s forecast? Check out our post on the 2024 Housing Market Analysis here.]

I saw one of the biggest shocks of the year when I read this headline. Raleigh housing market sinks to 74th in 2023 outlook. That is a 50 point drop from last year. And then a totally different group of economists ranks Raleigh as the #2 real estate market in 2023. What gives?? I’m going to unpack what all of that means and what to expect for the 2023 Raleigh housing market. But first let’s take a more broad overview of the national housing market so we can put it into context. 

2022 was a year of waiting. It felt like the entire world was on hold, waiting for the crash. Will we finally see an adjustment to housing prices, bringing more affordability to buyers in 2023? In today’s video we’re going to look at 5 different economists’ predictions, including Robert Shiller, who is famous for his prediction of the 2008 crash. He called it when nobody else did. Once I’ve laid the national foundation of market predictions, I will give more local expectations for what experts expect to happen in North Carolina and finally in the Raleigh housing market in particular. We will cover both interest rate and housing price predictions. 

First, let’s look at predictions from Seattle based Redfin corp: They say: 

• Mortgage Rates will average around 6.1% throughout the year, declining to around 5.8% by the end of 2023.
• The number of home sales will decrease by 16%. Low affordability is driving that decrease in sales, because fewer people are able to purchase homes. There are just going to be fewer sales. Don’t get confused here. This is not the price that is dropping 16%. It’s the number of people buying homes. But of course that has an impact on price.
• The median US home price, says redfin, will decrease nationally by 4%. This will be the first decrease in median value year over year since 2012. 
• Migration will slow to 20% from 24% at the peak of the pandemic. It was 18% before the pandemic. 
• And here is a really important piece of the puzzle. Redfin’s chief economist said “We saw a record share of houses being taken off the market in the last 12 weeks,” Prospective sellers, “are not willing to go down in price. They would rather keep the home and wait.” 

Capital Economics Predictions – Next comes a prediction by Capital Economics as reported by Marketwatch Capital Economics is a global economics firm based in London. They predict: 

• National home prices will fall 8% in 2023.  That’s double the redfin prediction!
• Mortgage rates will rise and hover around 7%, from a current average of 6.47 according to Bankrate.com
• Housing affordability will decrease due to the rise in rates, making it the worst housing affordability crisis since 1985
• Rates will go back down to 5.75 by the end of 2023.  That’s nearly the same as Redfin’s prediction.
• Single family home construction will be at its lowest since 2014. 
• The market will recover in 2024.

Interestingly, another one of Redfins predictions was also that investor activity will bottom out in the spring, decreasing about 25% and then tick back up by the end of the year. Which makes sense if rates do follow the trajectory of peaking and then falling later in the year. 

Economist Lisa Sturdevant at Housingwire says

• The housing correction will look very different depending on where you’re located. Some cities will see drops and some will actually see prices continue to rise. 
• Mortgage rates will continue to fall, but the decline in rates will be much slower than the rate at which they increased. 
• Rates will end up around 6% by the end of the year.  Again we’re seeing a good pattern in these rate predictions.
• Fewer people will be buying homes. The number of home sales will be the lowest in 9 years. 
• Lack of buyers in the market will be due to continued inventory shortages. She’s saying there isn’t going to be anything for them to buy. Again this is a recurring idea that sellers are going to wait out the recession. That combined with the higher rates might have buyers sitting on the sidelines waiting. 
• US median home prices will remain flat, while cities with more affordable markets combined with healthy economies will see bigger home value increases. The markets with the highest affordability challenges like LA and San Bernadino where home values are 10x the median household income will see the biggest price drops. This idea of a flat market average nationally is the most positive opinion I have seen and honestly I am not sure I’m buying it. 
• Sturdevant goes on to say that while buyers will have more traction in 2023, it will still be a challenging market.

Robert Dietz, chief economist at the homebuilders group is forecasting rates to peak around 7 ½ percent. 

Garrett Derderian, the director of market intelligence at Serhant, says the mountain west region and west coast region are the “most likely” to depreciate with expectations of 10-20% drop from peak pricing.  Still, Derderian noted that “most East Coast markets are likely to see minimal depreciation of no more than 5%.”

And finally Robert Shiller says he believes the chicago mercantile exchange futures market estimate of a 10% national home price decrease is reasonable. That would probably look something similar to what Garrett Derderian noted with big drops on some areas and much smaller drops in others to average out to that 10% nationally. 

Okay, so we’ve got estimates of a national housing price correction of anywhere from 4% to 10% and interest rates hovering in the 6-7% range very similar to what we have seen in the second half of 2022. But most economists are also saying that not every city will feel the correction the same way and there will even be markets that will increase in value in 2023.

Let’s take a look at the North Carolina market to get an idea of what might happen here in the Raleigh housing market. Let’s go back to that initial article I shared about North Carolina’s housing ranking dropping 50 points. What exactly does that mean? What they are ranking is the hotness of the market – how many homes will sell and what kind of appreciation that market will see.  So the hottest markets in this ranking will have sales numbers and sale prices increase the most.  Lets look at the criteria that goes into these rankings and then it’ll make more sense when I tell you what is expected to happen with Raleigh pricing in 2023. First, these rankings are based on where the analysts are predicting people are going to go. Also, realize that a lot of this data is based on online search activity showing us where people are searching for homes, where they currently live and using the 10 or so years of data that companies like Zillow and Realtor.com probably have that helps them predict actual moves based on search behavior. So if you’re sitting in your living room snowed in in Chicago, searching for places to move, the algorithm probably knows what percentage of those searches actually turn into moves, aggregating over a number of years, not just during covid. So from that data, this list from Realtor.com predicts that midsized metros that employ a higher proportion of people in manufacturing, government, education and healthcare and fewer people in tech, IT and leisure and hospitality are going to see the biggest number of people buying homes. I actually have a problem with this ranking system. For example, they are expecting tech areas to see big decreases, but those won’t be felt evenly in all tech areas. The predictions we’re going to look at next, actually uses a metric that allows them to differentiate between which tech areas will boom and which will bust, which I think is much more valid. But we’ll look at that in a second. What’s interesting in the Realtor.com predictions is that several cities in North Carolina ranked significantly above the Raleigh housing market. Greensboro-High Point Ranked # 24 and Winston Salem ranked 25. These cities are actually expected to see an INCREASE in the number of homes sold in 2023. 2.2% and 2.4% increases respectively. And with that increase in sales, their median home price is expected to increase 6.2% in greensboro and 5.8% in winston salem. Greensboro’s median home price is 247,000 and Winston Salem’s is 240,000, both significantly below Raleigh’s median of 446,000.

The next North Carolina city on the list is Durham-Chapel Hill which ranks at 41 and is expected to see a meager .7% increase in the number of homes sold and is expected to increase in value 5.9%. Charlotte ranks right at 50 with an expected decrease of .3% in number of homes sold and an expected increase of median home value of 5.5%. Raleigh comes in at #74, six slots above Austin Texas with an expected 7.3% drop in the number of homes sold. Remember that Austin is one of those cities that people are expecting home values to decrease more than other areas. BUT…here’s the crazy news. Analysts are predicting a 5.4% increase in property values in Raleigh in 2023. Undoubtedly, the number of homes sold in any given market is related to the inventory in that market.  So, while they don’t go into that aspect of the market in the article, some of these places that are expected to slow in terms of absolute number of sales may well be markets where inventory is going to remain tight.

I’ve been saying I think we’ll have a flat to slightly declining market for at least a year now. That has just been a gut feeling. but I have to admit that the forecast we’re getting ready to look at is incredibly compelling and they bring up some data points that I didn’t have access to that has changed my mind. Economists at the National Association of Realtors are laying out a pretty solid analysis for why they think Raleigh will be one of the top performing housing markets in 2023. NAR lists Raleigh as the number 2 city to watch in 2023, second only to Atlanta. And by city to watch, they mean they’re going to have one of the best housing markets. They have a list of 10 criteria they used to determine this, but some of the most compelling ones in my mind are these: 1)  there are more renters that can afford to buy the median priced home than at the national level, 2) job growth is stronger than at the national level 3) faster growth of information industry jobs than at the national level. (Do you see how this differentiates the tech cities that will grow and those that will shrink?) Of course tech jobs pay 50% more than the average employee 4) there is a larger share of teleworking employees, and 5) more people are moving to the area than leaving 

Lawrence Yun, head economist at NAR states,  “The economic conditions in place in the top 10 U.S. markets, all of which are located in the South, provide the support for home prices to climb by at least 5% in 2023.”

So the good bad and ugly of the 2023 Raleigh Housing Market is this: 

1 – In 2023, Raleigh will outperform the national housing market. If you need to buy a home and this market makes you nervous, Raleigh is going to offer some of the best security, to the extent that is possible, than just about anywhere else in the country. Raleigh outperformed the market in 2008 and it looks like we just might do it again in 2023. This is what NAR had to say about Raleigh in their report:

Although this area is less affordable, more than 20% of the renters can afford to buy the typical home. The job market is robust, and it’s not slowing down anytime soon. This area has been recognized as one of the fastest-growing tech hubs in the country. Data shows buyers have more options in this area as a single-family permit is issued for every 3 new jobs. 

2 – People are not hurting to sell their homes.  Many of them are content to hold their property than to sell it for less.  This hurts inventory levels and keeps prices from a downward spiral like we saw in 2008 and following.  Bad news for buyers looking for a deal (although there will surely be some deals out there from sellers that must sell) but good news of sorts for property owners.

3 – Rates are not going to plummet in 2023.  This makes housing affordability a continuing problem for many.  Not good news for most.  But, no one is expecting them to skyrocket either.  That is good news.

4 – Inventory shortages will continue in many parts of the country.  Those of you who were hoping 6 months ago for a slew of foreclosures to spike the inventory are likely to be disappointed. I think that is good news.  I’d love to see more inventory, but not at the cost of people losing their homes.

5 – The East Coast will fare better than the West Coast and the South will do better than anyone else.

And 6 – Raleigh will be protected from the worst of the housing price decreases, but may still see some limited inventory.  On the whole, this is good news for the Raleigh market.  Raleigh is still desirable, still relatively affordable, and still growing.  Buyer’s should have an easier time in 2023 than they did in 2022 as we creep toward a more normal and hopefully balanced market.  But affordability will remain an issue as interest rates keep many buyers on the sidelines.  Slower home price growth will help, but won’t dramatically change the market.

So there are 2023’s Raleigh housing market predictions.