Did you believe falling home prices would make buying a house more affordable in 2023? You're wrong.

• Home prices are falling at the fastest rate in 15 years, according to data firm Black Knight.
• But most mortgage borrowers are now paying double than what they would have in 2021.
• Higher mortgage rates offset any affordability that might be gained from slowing price appreciation.

US home prices are dropping at the fastest rate since the Great Recession — but it won't make homeownership anymore affordable in 2023.

It all comes down to the Federal Reserve's aggressive battle against surging inflation. As the Fed raises interest rates in an attempt to bring the economy into equilibrium, mortgage rates have reached levels — peaking at more than 7% — not seen since the mid-2000s.

Indeed, data from Realtor.com shows that the typical monthly mortgage payment is expected to climb by 28% in 2023. That means the average homebuyer will spend $2,430 a month for shelter — a sizable uptick from the 2022 rate of $1,750.

Those increased monthly payments are poised to offset any advantage that homebuyers may have hoped they could win as a result of home prices in many areas nationwide declining over the last few months.

As the Fed is poised to raise interest rates higher next year, which it is expected to do in January, prospective buyers will have to dig even deeper to afford homeownership.

Predictions that home prices will fall further in 2023 may not help much. Higher borrowing costs coupled with still-high prices — despite sellers cutting their asking prices in markets across the country, especially in popular pandemic Zoom towns like Austin and Phoenix — will pull housing affordability down even lower.

Faced with such daunting costs, prospective homebuyers are likely to shrink back — or give up entirely.

"With mortgage rate hikes projected to continue through March, the spring season will likely be less busy than in a typical year as buyers and sellers recalibrate their expectations around smaller budgets," Realtor.com researchers wrote in a 2023 housing forecast released Wednesday.

There's a glimmer of hope: If home-buying activity continues to slow next year, larger price cuts could be on the horizon. People with enough income or savings to stomach the higher borrowing costs could be in for some discounts — and definitely fewer bidding wars than in 2020 or 2021.

However, with builders still needing to construct at least 1 million new residential homes to meet the pace of demand, prices are unlikely to drop to pre-pandemic levels.

"Compared to the wild ride of the past two years, 2023 will be a slower-paced housing market, which means drastic shifts like price declines may not happen as quickly as some have anticipated," said Danielle Hale, Realtor.com's chief economist.

This could set the stage for next year's housing ecosystem. Buyers will have to contend with the still-high prices and higher borrowing costs. Sellers will not get as much money for their homes as they hoped — plus, they still have to pay to live somewhere else after they sell, which is a deterrent to putting a home on the market in the first place.

"It will," Hale confirmed, "be a challenging year for both buyers and sellers."