With mortgage rates  retreating from their highest since 2002 and the U.S. housing market cooling, some buyers are expecting to get a deal next year instead of having to contend with sky-high home prices. Unfortunately, that’s just wishful thinking.

Although most economists think rates have peaked—or close to it— the consensus is that rates will hover around 6.5% or 7% for 30-year fixed mortgages for the foreseeable future.

And on home prices, there’s no reason to think we’ll see big declines any time soon. I surveyed half a dozen economists to find out where home prices are headed in 2023. By and large, most are anticipating prices on average to stay within 5% of where they are now.

One of the most bearish scenarios foresees a 20% drop in prices in 2023. But even analysts who expect a drop of that magnitude think it would be spread out over several years.

That’s little consolation for those who had hoped a big decline in home prices could soften the blow of mortgage rates that have doubled over the last 10 months. Consider this: To keep mortgage payments at the historical share of household income (about 18%), home values would need to drop 39% from where they are currently, according to Zillow.

That’s not happening. Inventory is just too tight. Homebuilders haven’t built many new houses and many existing homeowners don’t want to sell and trade their low mortgage rates for higher ones.

Nor are homeowners being forced to sell as they were in 2008. Just 1% of realtors said they were working with distressed sellers, according to a recent survey by the National Association of Realtors. That compares with 49% of realtors who were doing so in 2009.

There are also now more young middle-aged adults (“elder Millennials”) eager to buy. That will help to keep home prices propped up, says Len Kiefer, Freddie Mac’s deputy chief economist. That’s another key difference with the early aughts, when there just weren’t as many homebuying Gen X’ers, the smallest generation.

Still, there may be markets where a bigger drop is coming. Think areas where homes are expensive, such as San Jose (down 11% from its peak already) and San Francisco, or those that had a big run-up in home prices during the pandemic, such as Austin, Boise and Phoenix, according to Redfin. Other regions, such as the Midwest and Northeast, are unlikely to see price declines, if any. 

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