The U.S. housing market, as reflected in the December data, presents a nuanced landscape with both challenges and opportunities. While existing-home sales showed an overall decline, regional variations and the anticipation of market shifts in the new year introduce complexities.
While the future is unpredictable, current trends can provide insights into what we can expect in the housing market. The housing market is expected to be balanced in 2024, but the answer to the question “Is it a buyers or sellers market?” will vary depending on the location.
The recent data indicates a market that slightly favors sellers, as existing home sales experienced a decline while median prices continued to rise. However, regional variations and the anticipation of increased inventory in the new year suggest a potential shift in favor of buyers. While there are concerns about the sustainability of the rapid rise in home prices, the market currently shows signs of stability
U.S. Housing Market Trends: Analyzing December's Data
Existing home sales experienced a 1.0% decline in December, reaching a seasonally adjusted annual rate of 3.78 million, according to the National Association of REALTORS®. This marks a 6.2% drop compared to the previous year. Despite the dip in sales, the median existing-home sales price showed resilience, rising by 4.4% from December 2022 to reach $382,600. This increase extends a streak of six consecutive months of year-over-year price growth.
On an annual basis, existing-home sales hit 4.09 million, the lowest level in almost 30 years, while the median price achieved a record high of $389,800 in 2023.
The inventory of unsold existing homes experienced an 11.5% slump from the previous month, settling at 1 million by the end of December. This represents a 3.2 months' supply at the current monthly sales pace.
Regional Variances in Existing-Home Sales
Existing-home sales varied across the four major U.S. regions in December. Sales slipped in the Midwest and South, rose in the West, and remained unchanged in the Northeast. All regions, however, witnessed year-over-year declines in sales.
On an annual basis, existing home sales (4.09 million) dropped to the lowest level since 1995, while the median price reached a record high of $389,800 in 2023.
Existing-home sales in the Northeast remained steady at 470,000 units in December, showing no change from November. However, there was a notable 9.6% decline compared to December 2022. Despite the decrease in sales, the median price in the Northeast surged by 9.4% to reach $428,100, underlining the resilience of property values in the region.
The Midwest experienced a 4.3% contraction in existing-home sales from the previous month, settling at an annual rate of 900,000 in December. This represents a significant 10.9% drop from December 2022. In contrast to the decline in sales, the median price in the Midwest rose by 5.9% to $275,600, showcasing the region's pricing resilience.
Existing-home sales in the South descended by 2.8% from November, reaching an annual rate of 1.72 million in December. This reflects a 4.4% decrease from the prior year. Despite the dip in sales volume, the median price in the South saw a modest increase of 3.8% to $352,100 compared to one year ago.
The Western region witnessed a notable 7.8% growth in existing-home sales from the previous month, totaling an annual rate of 690,000 in December. However, there was a marginal 1.4% decline in sales compared to one year before. The median price in the West reached $582,000, showing a robust 4.8% increase from December 2022, highlighting the region's continued price appreciation.
NAR Chief Economist's Insight
The National Association of REALTORS® Chief Economist, Lawrence Yun, offered insights into the market conditions. He anticipates that the recent month's sales represent the bottom before a potential upturn in the new year. Yun attributed this optimism to significantly lower mortgage rates compared to two months prior and the expectation of increased inventory in the coming months.
Total housing inventory at the end of December was 1 million units, down 11.5% from November but up 4.2% from one year ago. Unsold inventory equates to a 3.2-month supply at the current sales pace.
Price Trends and Homeownership
The median existing-home price for all housing types in December reached $382,600, reflecting a 4.4% increase from December 2022. Despite sluggish home sales, Yun emphasized that 85 million homeowning households enjoyed further gains in housing wealth. However, he cautioned that the recent rapid rise in home prices is unsustainable and calls for measures to create a path towards homeownership for today's renters.
All four U.S. regions posted price increases, emphasizing the widespread nature of the market dynamics.
REALTORS® Confidence Index
According to the monthly REALTORS® Confidence Index, properties stayed on the market for 29 days in December, a slight increase from 25 days in November and 26 days in December 2022. Notably, 56% of homes sold in December were on the market for less than a month.
First-time buyers accounted for 29% of sales in December, a slight decrease from 31% in November 2023 and December 2022. All-cash sales, representing 29% of transactions in December, were on the rise from the previous month and the same period last year.
Distressed sales, including foreclosures and short sales, constituted 2% of sales in December, indicating stability in this aspect of the market.
Single-family and Condo/Co-op Sales
Single-family home sales slightly decreased to a seasonally adjusted annual rate of 3.4 million in December, down 0.3% from November and 6.1% from the previous year. The median existing single-family home price reached $387,000 in December, marking a 4.0% increase from December 2022.
Existing condominium and co-op sales recorded a seasonally adjusted annual rate of 380,000 units in December, down 7.3% from both November and the previous year (410,000 units). The median existing condo price was $343,800 in December, reflecting an 8.2% increase from the previous year ($317,700).
Projected Future Housing Market Trends
Buyers may have more leverage in negotiations in 2024, but the market is still competitive in many areas. The housing market has been cooling down since last year, but it's still too early to say whether it will be a buyers or sellers market. Some areas are becoming more buyer-friendly and others remain seller-friendly.
Here are some factors that are contributing to this shift in the housing market to become more buyer-friendly:
- Rising interest rates: Mortgage rates have been rising steadily since the beginning of the year, making it more expensive for buyers to finance a home. This is expected to slow down demand and give buyers more leverage in negotiations.
- Rising inflation: Inflation is also on the rise, which is making it more expensive for everyone to live, including homeowners. This could lead to some sellers being more willing to sell their homes at a lower price.
- Increasing inventory: The supply of homes for sale is slowly starting to increase, which is also giving buyers more options.
In this article, we will discuss the key trends that are expected to shape the housing market in the coming years, along with the potential impact of each trend. The cooling of the housing market could be terrible news for sellers, but for buyers, it's great. Yet there is still the problem of sky-high mortgage rates.
The bright side is that if buyers hold off, the supply of homes will increase, putting further pressure on sellers to decrease prices. This would constitute a long-overdue course correction for the housing market. Mortgage rates are skyrocketing. Home sales are declining. Supply is improving. We are witnessing a sharp slowdown in the housing market due to higher mortgage rates.
Housing Market Trend #1: Increasing Demand for Affordable Housing
The demand for affordable housing is one of the most pressing issues in the housing market. The rise in housing prices, combined with stagnant wages, has made it difficult for many individuals and families to find safe and secure housing. In 2023, it is expected that access to affordable housing will continue to be a challenge. Innovative solutions will be necessary to address this issue and provide affordable housing options for those in need.
Housing Market Trend #2: Shift toward Suburban and Rural Areas
The COVID-19 pandemic has caused many people to reevaluate their living arrangements, with larger homes and more space becoming increasingly important. This shift in priorities could result in a greater demand for housing in suburban and rural areas, leading to higher prices. This trend is expected to continue in 2023, especially as remote work becomes more prevalent.
Housing Market Trend #3: Rising Home Prices
Despite the economic impact of the pandemic, housing prices have continued to rise due to limited supply and high demand. While this is good news for homeowners, it could make it more difficult for some individuals to enter the housing market. The trend toward rising home prices is expected to persist in 2023, particularly in urban areas where the supply is limited.
Housing Market Trend #4: Stricter Mortgage Standards
As the economy recovers and interest rates rise, mortgage lenders may become more cautious about who they lend to. This could make it more difficult for some individuals to qualify for a mortgage and realize their dream of homeownership. Stricter mortgage standards are a potential barrier for those seeking to enter the housing market.
Trend #5: Increased Investment in Technology
The pandemic has accelerated the adoption of technology in the real estate industry, with virtual home tours and digital transactions becoming more common. This trend is expected to continue in 2023, with technological investments helping to streamline the home buying and selling process. Technology could also play a role in addressing the challenge of affordable housing, with innovations such as modular homes and 3D printing.
Hence, the housing market in 2023 will be shaped by economic, social, and technological factors. While predicting the future is never easy, understanding these trends can help individuals and policymakers make informed decisions about the housing market. It is important to address the challenge of affordable housing, as well as the potential barriers to homeownership such as rising home prices and stricter mortgage standards. Technological innovations are also likely to play a critical role in shaping the housing market in the coming years. By keeping these trends in mind, stakeholders can work towards creating a housing market that is equitable, accessible, and sustainable for all.
Benefits for Homebuyers in 2024's Housing Market
There are a few potential benefits for homebuyers in the current real estate housing market:
- More choices: While the supply of homes on the market is still relatively low, it has increased slightly in recent months. This means that potential homebuyers may have more options to choose from when looking for a home. The number of new homes available on the market also increased in February, which means that potential homebuyers have more options to choose from.
- Slower price growth: Although home prices are still rising, the pace of growth has slowed down in some areas. This could make it easier for homebuyers to afford a home in certain markets.
- Easier negotiations: In a slower housing market, sellers may be more willing to negotiate on the price of their home or other terms of the sale. This could give homebuyers more bargaining power and help them get a better deal on a home.
- Lower prices: While the median price of a new home rose slightly from a year ago, the increased inventory could lead to greater competition among sellers, potentially driving down prices.
- Leading indicator: New home sales are considered a leading indicator for the housing market, meaning that an increase in new home sales could signal a positive trend for the housing market overall. This could be good news for potential homebuyers who may be hesitant to enter the market during a downturn.
Looking ahead to the remainder of 2023 in the US housing market, key trends and factors will shape the real estate landscape. These include the influence of interest and mortgage rates on buyer demand, the persistent challenge of limited housing inventory, steady growth in home prices, and concerns over affordability for potential buyers.
Generational shifts and the impact of remote work will also shape housing preferences, while government policies and regional variations will contribute to market dynamics. Overall, staying informed and adaptable will be crucial for navigating the evolving housing landscape in the coming months.
One key factor to watch is the potential impact of policy considerations, such as a temporary reduction in capital gains tax on investment property sales. If implemented, this measure could stimulate the market by increasing housing inventory, sales, and overall economic growth. Policymakers will need to carefully evaluate and balance the potential benefits of such measures against any unintended consequences.
Addressing the challenges of housing inventory and supply levels will be critical moving forward. Collaborative efforts among policymakers, industry professionals, and stakeholders will be necessary to find sustainable solutions. Encouraging an increase in housing inventory will help meet the demand from prospective buyers and potentially stabilize prices.
Localized data and insights will continue to be essential for making informed decisions. Consulting with local associations of REALTORS® and utilizing data from local multiple listing services (MLS) can provide accurate and detailed information specific to particular areas. This will help individuals and businesses navigate market conditions effectively and make strategic choices.
Monitoring forthcoming releases of key indicators, such as the Pending Home Sales Index and Existing-Home Sales data, will offer valuable insights into the evolving trends and dynamics of the real estate market. Staying informed and adaptable to changing conditions will be crucial for making well-informed decisions and seizing opportunities in this dynamic landscape.
While challenges persist, the real estate market also presents opportunities for growth and investment. With careful analysis of market conditions, consideration of policy measures, and collaboration among industry stakeholders, the real estate sector can strive toward a more balanced and sustainable future in the latter half of 2023.