The level of activity in the foothills market is down from the frenzy of 2020-early 2022, but the value of homes is not receding (see our blog “Thoughts on Foothills Home Values Today”).  Higher mortgage rates are dampening demand for homes as financing becomes more expensive, but there is no housing bubble in the offing.  So what’s in store for the foothills real estate market in 2023?

Mortgage rates will drop.  There are early signs that the Fed’s aggressive rate increases are beginning to have an effect on the economy.  Rates may go up further in early 2023, but not by as much as they did last year.  And rates will drift down a bit by year’s end, but not anywhere near the 3% we saw in 2019-2020.  We can expect mortgage costs to settle to around 5%-6% in the future.

Inventory won’t meet demand.  While the number of home sales is less than the past two years, housing stock will still not be adequate to meet demand.  After the Great Recession, builders pulled back and our nation is millions of homes short of supply catching up to demand.  This phenomenon is exacerbated in the foothills because there are few new subdivisions coming on line and Evergreen-Conifer continues to generate outsize buyer interest due to our quality lifestyle.

It will be a balanced market.  Higher mortgage rates affect affordability and limit how much buyers can pay for a home.  Relatively fewer buyers will force sellers to become more realistic in pricing their homes and they can expect it to take longer to sell.  Like in years past, well-priced homes will enjoy a competitive edge over other properties as buyers sharpen their pencils in deciding which home to buy.

Home values won’t fall.  Economists see the economic downturn being modest and the housing market bottoming out next year. Depending on how eager home sellers are to move, there may be more negotiating on price & terms, but beyond individual instances of price discounting, the market dynamic of low supply accommodating relatively robust demand remains in place and will prevent home values from falling overall.