Housing and rental prices are expected to continue to climb next year, but at a much more moderate rate than the sharp increases seen earlier this year.

Mortgage rates will remain high, which has become an annoyance to many first-time homebuyers and other home buyers who cannot afford to pay all in cash. However, home prices are not expected to rise sharply again.

Sales are expected to continue to decline as homebuyers simply cannot afford the double burden of high home prices and high mortgage rates.

Housing and rental prices have declined from their summer peaks, but are still rising year over year.

Nationally, home prices are projected to rise 5.4% year-over-year in 2023. This will still hurt, but not as badly as the double-digit increases seen during the 2019 coronavirus disease pandemic.

Median monthly mortgage payments are expected to increase by about 28 percent over this year, twice as much as in 2021.

To get a better idea of how distressed homebuyers are, monthly mortgage payments at the end of October were about three-quarters higher than in 2021. (The latter figure depends on the average mortgage rate for that week.)

With such high mortgage rates, what buyers can pay may not match what sellers want.

Home price growth will continue to slow, and may even decline slightly over the next few years. The market correction is expected to likely continue through 2025.

Nationally, rents are expected to rise 6.3% year-over-year in 2023. While painful, it is also well below the double-digit increases seen earlier this year.

The exceptions are the big, expensive cities, where rents appear to have fallen sharply during the epidemic as renters fled to quieter, less populated neighborhoods.

Landlords first lowered asking prices sharply, then raised them again, and when tenants returned to rent, landlords would raise them again.2

In 023, rents in urban areas may have more room to grow than in the suburbs.

Soaring mortgage rates have stalled the housing market, forcing many potential buyers to stay put or rent longer than they expected.

Many plan to get back into the home buying game once rates drop. But they may have to wait longer than expected.

Mortgage rates are forecast to average 7.4 percent in 2023, dropping to 7.1 percent by the end of the year.

Interest rates are expected to remain high due to the role of the Federal Reserve (Federal Reserve).

As the Fed raises interest rates to slow inflation, mortgage rates have followed a similar upward trajectory. The Fed appears committed to continuing to raise interest rates.

While the Fed's actions are only one factor affecting mortgage rates, it has become a significant factor this year.

This is expected to keep rates at around 7% a few weeks ago, and then fall back to the middle range of 6% after inflation shows signs of cooling.

Despite some progress on the inflation front, it is still 3.5 to 4 times higher than the level the Fed would like.

The silver lining for buyers who have long been frustrated by too few choices is that more homes will be available for sale. Real estate inventories are expected to soar 22.8%. (This includes only previously occupied existing homes, not new construction.)

However, the spike in home prices is not because more sellers are listing their homes for sale.

Homes are expected to stay on the market longer because fewer buyers will be able to afford to buy properties with mortgage rates so high. These homes will increase, which is why inventory will rise.

While these additional homes are desperately needed, they are still far below a more normal housing market.

The number of existing homes for sale in 2023 is still expected to be 15% lower than in 2019, when there is already a national housing shortage.

Despite the housing shortage, builders are not expected to build as much housing in 2023. Their customers are drying up because buyers can't afford to buy these homes at higher mortgage rates. New construction starts are expected to fall about 5.4 percent year-over-year.

The number of home sales is expected to continue to decline as buyers continue to be driven out of the market by high home prices.

Sales are expected to decline 13.8% year-over-year in 2022 and continue to decline 14.1% in 2023.

Next year's home sales will be just 4.53 million units, the fewest since the Great Recession in 2012. (These projections include only existing homes and do not include new construction.)

The usually busy spring of 2023 is expected to be quieter than normal as buyers grapple with higher prices and mortgage rates.

Renters are already tired of dealing with rising rents and inflation, which makes it difficult for them to save for a down payment on their homes.

Many homeowners will simply stay put and ride out the storm of the real estate market.

Many are locked into mortgages with extremely low interest rates. This will make them think twice before selling their property and buying a new home with a mortgage rate that will be significantly higher. Even if they were to downsize to a much smaller home, it would likely cost them more money.

The U.S. homeownership rate is expected to remain largely stable, falling from 65.8 percent in 2022 to 65.7 percent in 2023.

Those companies that sell their stock will still do well.

By 2023, the average homeowner's equity will increase by $25,650.

As residents in higher-priced markets move to lower-priced markets, pushing up home prices, those living in lower-priced areas may see higher gains.