The U.S. housing market, after already cooling down over the summer as interest rates rose, is expected to decline further in 2023 but that doesn’t necessarily mean home prices will be lower for would-be buyers priced out of the market.

Home prices are expected to “stall completely,” Goldman Sachs predicted. However, prices are expected to remain high due to inflation and limited supply.

“We expect home price growth to stall completely, averaging 0% in 2023,” Goldman Sachs Chief Economist Jan Hatzius wrote in a note to clients. “While outright declines in national home prices are possible and appear quite likely for some regions, large declines seem unlikely.”

U.S. home prices averaged $525,000 in the second quarter of 2022, up from $440,600 in 2021 and $374,500 in Q2 2020, according to the Federal Reserve Bank of St. Louis.

Goldman projects new home sales will decline by 22 percent this year, existing home sales will drop by 17 percent and housing GDP will drop by 8.9 percent in 2023. It projects another 9.2 percent decline in housing GDP in 2023.

Rising mortgage rates and a growing number of potential buyers backing out of deals have helped push sales down to the lowest level in two years. Builders are increasingly reluctant to build new homes, keeping prices high.

Continued unaffordability could further weaken home sales, reducing prices across the board, Hatzius wrote in the note. 

“Higher mortgage rates and reduced affordability are not the only drag on housing,” Hatzius noted. “Existing home sales and building permits have fallen more sharply this year in regions where they increased the most in the earlier part of the pandemic, suggesting that the recent declines have also reflected the partial retreat of a pandemic-related boost to housing demand.”

Federal Reserve Chairman Jerome Powell said in June that the pandemic housing boom was over and that rising mortgage rates would cool the U.S. housing market.

“If you are a homebuyer, somebody or a young person looking to buy a home, you need a bit of a reset,” Powell said. “We need to get back to a place where supply and demand are back together and where inflation is down low again, and mortgage rates are low again.”

A “reset” could mean more options for home buyers such as rising inventory and less competition or fewer bidding wars.

“Housing market activity slowed considerably over the summer, leading to widespread deceleration in home price growth and rising concerns over recession in the housing market,” said CoreLogic deputy chief economist Selma Hepp.

“The rebalancing of buyer and seller expectations was inevitable after overheated and unsustainable demand and price growth, followed by a surge in mortgage rates and consequent constraints on affordability,” Hepp added. “Thus, cooling of price acceleration, as well as demand, will yield a healthier and more balanced housing market going forward.” 

Almost one in five home sellers cut the asking price of their homes in August in an attempt to lure in buyers. Builders are hitting the brakes on construction as building costs continue to rise and Americans are canceling deals to buy homes at the highest rate since the start of the covid pandemic.