In a report published this month, independent research firm Capital Economics warned that sales will slump and housing prices will fall next year.

With lending standards still tight and affordability poised to deteriorate, consumers should expect their purchasing power to deteriorate even as home prices fall, the group said.

"Given that we are unlikely to see an improvement in affordability anytime soon, many buyers will be pushed out of the market, while others will simply be reluctant to buy," it said." As bidders become fewer, market power will shift further from sellers to buyers."

Sellers, many of whom now have ultra-low-rate mortgages, will be forced to accept lower prices in the coming year, the research firm said. after mid-2023, Capital Economics predicts home prices will fall 8 percent from this year, and consumers can expect price growth to return to 2.5 percent by the end of 2024.

"With fewer bidders, market power will shift further from sellers to buyers."

The group also expects mortgage rates "to remain near 7% for the remainder of next year," meaning affordability will be at its worst since 1985.

For middle-income households buying median-priced homes, mortgage payments rose from 13.3 percent of income in May 2020 to 28.5 percent in October 2022, the group said.

According to Realtor.com, the median home listing price in the U.S. is now $425,000, up 13 percent in the past 12 months. (Realtor.com is operated by News Corp. subsidiary Move Inc. and MarketWatch is a division of Dow Jones & Company, which is also a subsidiary of News Corp.)

In the report, researchers at Capital Economics forecast that mortgage rates will fall back to 5.75 percent by the end of 2023.

The group also expects the U.S. economy to fall into a "mild recession" in 2023, with sales of single-family homes falling to their lowest level since 2011.

It also expects starts of single-family homes, or new construction, to fall to the lowest level since 2014. The market will recover in 2024, the report said.

The report notes that even with prices expected to fall, people may still have trouble affording to buy a home, meaning more potential buyers may enter the rental market.

Some good news: homebuyers can expect a surge in new supply next year as builders complete home construction, which will drive rents down 0.5 percent in 2023, the report said.