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The Federal Reserve hammered both sides of the housing market in 2022. Rising mortgage rates kept home purchases out of reach for many, while higher building costs made it difficult for sellers to reduce the prices of new homes.

The National Association of Homebuilders (NAHB) declared a recession in the housing market in August. (Industries can experience recessions while the broader economy is not in a recession).

NAHB chief economist Robert Dietz cites the data supporting that call: existing house sales, mortgage applications, and single-family starts are each down by a third year-over-year. “We’re seeing decade-low readings for just about every index that you can imagine for housing,” Dietz says.

Normally this would lead to a crash in prices. But in 2023, with the market not yet recovered from two years of supply chain delays? Prepare for something less traditional.

Home prices are going to keep going up in 2023

According to the NAHB, construction expenses have increased 35% since covid, while mortgage rates have doubled. High costs and interest rates have left homebuilders with fewer purchasers and more expenses.

Some builders have been able to offer discounts on home prices because of the profits they were raking in at the height of the market. The John Burns Real Estate Consulting Group, which tracks earnings for builders, found that their 2022 margins were 27.3% and 28% in the third and second quarters respectively, says Eric Finnigan, director of building products at John Burns. In a normal year, these margins average 20% or 21%.

Builders sold at unusually high prices early in the pandemic due to great demand and low supply. And many builders wouldn’t price homes before they were ready to sell them, because the volatile prices of materials made them unsure about what price to charge, Finnigan said.