If you pay any attention to the news or social media, you've undoubtedly heard about the cooling real estate market by now. To add to the hype, there isn't a general consensus on what the future holds. Forecasts range from gloom and doom to much needed market corrections following unsustainable highs.

Before we dive into 2023 analyses, let's outline some factors that will help you gain a clearer perspective on the current market.

The pandemic created a whirlwind— and that's putting it mildly. Interest rates plummeted. Buyers' needs changed as we spent more time at home and shifted to remote work. People clamored to migration hotspots in previously affordable areas. More vacation homes were purchased. Investors accounted for 24% of single-family purchases in 2021. By the first quarter of 2022, that share had risen to 28%.

These conditions created an unprecedented price surge. US homes had a median appreciation of $52,667 between December 2020 and December 2021. That 1-year growth was more than the average American's take home— the median pretax income in 2021 was $50,000. By the spring of 2022, median prices surpassed $400,000 for the first time ever. Even as the market began shifting in recent months, the median home price in October 2022 was 40% higher than pre-pandemic values.

Despite ominous headlines implying that we're headed toward a market crash, economists agree that today's conditions aren't comparable to the financial crisis. Appreciation has slowed or declined in some markets and interest rate hikes have boxed out many buyers. However, this is vastly different from the early aughts when homeowners found themselves underwater because properties were bid up with artificial buying power. This led to a complete overhaul on lending regulations.

Today's buyers have strict requirements when it comes to income documentation and credit. According to the Federal Reserve Bank of New York, the average credit score for mortgage borrowers was 776 in Q1 last year. That, coupled with generous equity buffers and low fixed-rate mortgages, means it's unlikely we'll see a spike in foreclosure activity. To constitute a market crash, experts generally expect a significant jump in foreclosures and price declines of 20-30%.

Lawrence Yun, NAR Chief Economist, touched on this at an NRA conference in November. "Housing inventory is about a quarter of what it was in 2008. Distressed property sales are almost non-existent, at just 2%, and nowhere near the 30% mark seen during the housing crash. Short sales are almost impossible because of the significant price appreciation of the last 2 years," Yun said.

Mark Zandi, Chief Economist at Moody's Analytics, agrees that a crash is improbable, "I don't expect US house prices to crash. Of course, if the economy suffers a recession, then the house-price declines will be more significant. But even then, a crash seems like a stretch."

Zandi predicts prices could fall as low as 20% in the event of a recession. Last month he stated that he was "feeling more confident that the economy will be able to avoid a full-blown recession" which, from his perspective, would put declines closer to 10%.

The National Association of Realtors was more optimistic with projections of a 1.2% rise in existing home sales. CoreLogic and Realtor.com also forecasted median price increases of 2.8% and 5.4%, respectively. 

Freddie Mac, Fannie Mae, Zillow, Redfin, and Mortgage Bankers Association expect price drops ranging from 0.2-4% over the next year. Average interest rate predictions sit between 5.2-7.4%.

The good news is that our area wasn't a pandemic boomtown. While we experienced substantial growth, the region remained in the lower half of US median sales prices during the peak. Taylor Marr, Redfin's Deputy Chief Economist, says markets in the Midwest and Northeast will hold up best.

There's a lot of uncertainty as we kick off the first quarter of 2023, but there's no one-size-fits-all when it comes to real estate. Something had to give with the rate at which prices were skyrocketing and we're in a market that will likely return to a more even-keel than much of the country. Now is the time to contact your Realtor for assistance in tracking your home value. If you end up with a high interest rate, talk to your loan officer about refinancing once rates drop.