In Our Housing Forecast, We See More Starts, Firmer Home Prices in 2023

Through the first four months of 2023 (typically viewed as the “spring selling season” for homebuilders) new home sales significantly outperformed existing home sales. Indeed, April year-to-date new home sales declined roughly 10% year over year compared to over a 26% decline for existing home sales. New home sales improved sequentially during the first four months of the year, and April sales increased 11% year over year, albeit on an easy prior-year comparison (April 2022 new sales were down 24% year over year).

We believe two factors explain the relative strength of the new home sales market. First, homebuilders addressed affordability challenges with a combination of sales incentives (primarily mortgage rate buydowns), base price reductions, and smaller floor plans. Second, 91% of outstanding mortgages have a contract interest rate below 5% (according to the Federal Housing Finance Agency), which disincentivizes existing home sales (known as the “rate lock-in effect”). As such, more would-be buyers are turning to the new construction market.

Considering the better-than expected spring selling season, we now expect total housing starts to decline 17% in 2023 (to 1.295 million units), with single-family starts 18% lower (0.825 million units) and multifamily starts down 14.5% (to 0.470 million units).

While we still expect home prices to decline in 2023, recent price resiliency caused us to moderate our price outlook. Based on our forecast sales mix, we expect the median blended home price to decline by 3% in 2023.

Repair and remodel spending is slowing as we expected, and we continue to forecast about a 4.5% decline in owner-occupied improvement spending this year.

We don’t expect our forecast revisions to materially change fair value estimates across our U.S. housing-related coverage. Our long-term outlook, which sees rebounding residential construction and repair and remodel spending beginning in 2024, remains unchanged.