Since Covid it seems like traditional patterns have been broken.  I hear time and time again that X or Y is different and there have been fundamental changes. Is this true, is everything “radically” different now?  Is a bear walking around in the snow a sign (zoom in on the pic, he is not smiling :<)?   What did a recent federal reserve study say about house prices while retail sales continue to hit records? What does the bear mean for inflation, interest rates, real estate prices/volume, and the general economy in 2023?


As I was writing this, I look up and see a bear walking around in sub freezing temps with plenty of snow cover towards the end of November high in the mountains.   This is definitely not normal as there is no food left and he should have already gone into hibernation (it was 4 degrees outside).  This bear is not unique as on the same day I was taking a trail run and I saw another set of fresh bear prints in the snow.  Although the bear is not following historical patterns, eventually he will go into hibernation when the snow becomes deep enough and there continues to be no food available.  There is no other option for the bear if it is going to survive the depths of the winter.

The bear is a good reminder for the upcoming year.  Although we are not following historical patterns in regards to timing, eventually the economy will fall into historical patterns and succumb just like the bear.  There are several factors that will drive the direction of 2023 and all of them are pointing to a reset to more traditional norms.

Where will inflation head in 2023?

Inflation:  After the November CPI report, there was great fanfare that recession had peaked.  Sure this is an important milestone if it holds true over the next 90 days, but the real discussion is how entrenched inflation has become.  Even with inflation off its highs, it is still 350% above the federal reserves 2% target.  It is going to take a while for inflation to come down to the fed’s preferred target and I do not think this is going to happen in 2023.  Wage growth and rents are holding steady which means inflation isn’t going to miraculously fall as many in the market are hoping.

Furthermore the most recent retail sales data just rose to an 8 month high which means the Federal reserve has a ton of work left to do.  The only way to tame the inflation beast is for rates to continue higher which will eventually impact everything in the economy.

What happens to interest rates in 2023?

Interest rates: Look for rates to stay high. Although the mortgage bankers and realtors association are both predicting a huge decline in rates I don’t foresee a huge change in 2023.  With inflation remaining high, mortgage interest rates in turn will float between. 6.75% and 7.75%.  I know this is a huge range but allot depends on upcoming CPI reports and how steadfast the federal reserve holds.  I wouldn’t be surprised to see rates at the upper end of the range as persistent inflation remains.

San Francisco Federal Reserve President Mary Daly said Wednesday “Pausing is off the table right now. It’s not even part of the discussion,” she said. “Right now, the discussion is rightly around slowing the pace and … focusing our attention really on what is the level of interest rates that will end up being sufficiently restrictive.” (CNBC)

What happens to real estate volumes in 2023?

Real estate volumes:  Real estate volumes for purchases and refinances will remain anemic in 2023.  With recession talks and high mortgage rates, there is not going to be a huge appetite for real estate. The housing market is “the most interest-rate sensitive segment of the economy,” and declining home sales “are not expected to improve” any time soon, Freddie Mac Chief Economist Sam Khater said last week. Total transactions for existing single-family homes, apartments and condos plummeted more than 21% across the US in the third quarter.

Will real estate prices go up or down in 2023?

Real estate prices:  As inventory increases and rates remain high, look for prices to come off their highs in the 5-20% range.  I know this is a huge range.  Cities that did not experience the huge pandemic booms will come off less, while cities that had huge increases over two years will decline more.  For example Boise, Denver, Portland, etc.. are in the 15-20% range while cities like Atlanta will be in the 5-10% range.

I’m not alone.  A new fed study is predicting similar declines: Fed economist Enrique Martinez-Garcia showed a scenario where prices now retreat by 15% to 20%  and could subtract 0.5% to 0.7% from inflation-adjusted consumer spending

Will there be a recession in 2023?

Recession: There is increasing talk about recession.  I think the economy remains stronger than many think until the second half of the year.  The second half is where the risk of recession increases as interest rates continue to bite into consumer spending.  Furthermore, in order for inflation to get under control, unemployment must increase.  This has happened in every cycle and will happen in this one as well, the only question is exactly when.

The other open question is how deep this recession will be.  As it stands now, I am thinking this one will be moderate/mild meaning we will not see a repeat of 2008, but we also will not see a swift recovery like we did before. We likely will kick around with low growth and high inflation for a few years.  There is considerable talk on Wall street about entering a period of stagflation.  Although I’m not ready to make a prediction on stagflation just keep this in the back of your mind that this could occur which would further strain the economy and real estate.



Although there are many in the mainstream media predicting a “Goldilocks” scenario where inflation comes down, employment remains high, and a recession is avoided, this is not probable or even possible at this stage.  Just like the bear in my yard that will eventually succumb to nature and go into hibernation, the economy will soon follow historic trends.  The yield curve inverted in March and has preceded every single recession in modern history.  This will occur in this cycle as well but just not as quickly as initially anticipated.

2023 is the transition year from go-go free for all pandemic spending to a much slower pace and considerably more risk. Seeing a Bear in the snow is a sign of what we have in store for 2023. Real estate is not immune to these forces and neither is the economy.  Rest assured that traditional patterns will emerge just as they have in every single economic cycle it just might be a bit delayed.


Additional Reading/Resources




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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors MagazineThe Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.


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