Current Housing Market Trends 2023

The housing market is predicted to slow down further in 2023. For sellers, this could be terrible news, 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. By autumn, mortgage rates had more than doubled, surpassing 7% in October. In recent weeks, rates have decreased a bit, but loans remain pricey, especially when compared to the historically low rates buyers received during the pandemic.

The 30-year fixed-rate mortgage is now averaging 6.15%, according to Freddie Mac. This makes an already expensive housing market even more unaffordable. The real estate market has emerged as a boon for sellers and a source of worry for buyers in the middle of this pandemic. If mortgage rates continue to rise, the housing demand will decrease further in 2023.

Here are the latest housing market trends.

• The national median list price declined to $400,000 in December, down from a record high of $449,000 in June (-11.1%).
• This represents a yearly growth rate of 8.4%, which is lower than last month’s growth rate of 11.0%.
• This is the first time that listing price growth has fallen below double digits since December 2021.
• The median sales price of existing homes trended up 2.3% in December to $366,900, reaching 130 consecutive months of year-over-year increases.
• Existing home sales fell 34.0% from one year ago.
• New home sales rose 5.8% in November from October but were down 15.3% from a year ago.

Looking at these latest trends, the housing market appears to be fully in the “correction” area since mortgage rates have surpassed the 7% threshold, home sales have cooled dramatically, and fears of a national recession loom large. By the end of the fourth quarter of 2022, experts anticipate a further slowdown in sales, rising interest rates, and heightened concern among buyers and sellers over the future.

However, the housing market will not crash. The main reason is that the current housing market is not driven by lax lending rules, subprime mortgages, or overly leveraged homeowners. Home price appreciation in the current housing market is backed by fundamentals and is defined by a relative deficiency of supply relative to demand. This demand has been fueled mostly by millennials entering their prime home-buying years, as opposed to fix-and-flip investors.

It appears that most markets will experience a seasonal slowdown in the fourth quarter of 2022. The present rise in mortgage rates is likely to have a further depressing effect on house sales activity, leading to a steeper decrease in sales than is typical for the end of the year. Price cuts on homes for sale are on the upswing, and with fewer people buying expensive (higher-priced) homes, housing values could fall even farther than initially anticipated.

“Evaporating demand has ended the strong seller's market of the past several years, and still-falling home sales tell us that many buyers are still not able to afford a purchase or are not yet convinced that the market is tilted sufficiently in their favor to move forward. The housing market is entering “nobody’s market” territory as buyers and sellers remain largely in a stalemate,” said Danielle Hale, chief economist for Realtor.com.

Housing Market Trends for Sales – November

Existing Home Sales 

According to the National Association of Realtors, existing home sales decreased by 1.5% in December compared to the previous month. Existing-home sales include all non-new-construction home sales, such as single-family homes, condos, townhouses, and co-ops. The year ended with a seasonally adjusted annualized rate of 4.02 million units, which was 34% less than in December 2021.

It is the slowest pace since November 2010, when the nation was reeling through a housing crisis driven on by bad subprime mortgages. The year's total sales decreased by 17.8% compared to 2021. 11 consecutive months of declining home sales can be attributed to mortgage rates that began climbing last spring and more than doubled by fall. During the first few years of the pandemic, sky-high prices, fueled by enormous demand, undermined affordability even further and precipitated a dramatic decline in supply.

Distressed sales – foreclosures and short sales – represented 1% of sales in December, virtually unchanged from last month and one year ago. Single-family home sales declined to a seasonally adjusted annual rate of 3.60 million in December, down 1.1% from 3.64 million in November and 33.5% from the previous year. Existing condominium and co-op sales were recorded at a seasonally adjusted annual rate of 420,000 units in December, down 4.5% from November and 38.2% from one year ago.

In December 2022, 28 percent of total sales were made in cash, up from 26% in November and 23% in December 2021. This indicates that a sizeable group of buyers is not impacted by mortgage rate changes. Investors (who make up many cash sales) made up 16% of all transactions in December, up from 14% in November but down from 17% in December 2021. First-time buyers were responsible for 31% of sales in December, up from 28% in November and 30% in December 2021.

Detached single-family houses continue to be in great demand. These properties provide greater living space and separation from adjacent houses than attached properties provide. Last month there was a surprising uptick in sales of new single-family houses and many experts believed that is likely to be short-lived as home prices continue to rise and the average 30-year fixed-rate mortgage continues to top 6 percent, decreasing affordability.

While sales are down in all price categories, they are falling most sharply on the higher end. Sales of homes priced above $1 million were down 45% year over year, compared with sales of homes priced between $250,000 and $500,000, which were down 34%.

The West witnessed the largest monthly reduction in existing-home sales, unchanged from November, but a 43.4 percent year-over-year decline. Sales in the Northeast declined 1.9 percent month over month and 28.8 percent year over year, while sales in the Midwest fell 1.0 percent month over month and 30.3 percent year over year. The South also experienced the dip, with existing-home sales falling 2.2 percent month over month and 33.1 percent year on year.

The South accounted for close to half of all the sales in November, accounting for 45 percent, followed by the Midwest at 25 percent and the West at 17 percent, with the Northeast accounting for only 13 percent. The highest sales were seen in the price segment of $250,000 to $500,000. This price range accounted for 44% of total home sales. The price segment in the $100,000 to $250,000 range accounted for 24% of total home sales. The price segment in the $500,000 to $750,000 range accounted for 16% of total home sales.

New Home Sales

New home sales unexpectedly increased in November, despite rising mortgage rates and house prices, which have severely damaged affordability. According to the Commerce Department, sales of new single-family houses in the United States increased for a second consecutive month in November, largely due to Americans taking advantage of a decline in mortgage rates and incentives from frantic builders.

New home sales, which account for a small share of U.S. home sales, jumped 5.8% to a seasonally adjusted annual rate of 640,000 units last month. The revised sales rate for October was 605,000 units, down from the previously stated 632,000. New home sales surged in the Midwest and West but fell in the Northeast and the densely populated South.

According to the National Association of Home Builders, 62% of builders used incentives to entice buyers in December, including providing mortgage rate buy-downs, paying points for buyers, and offering price reductions. Single-family housing starts and building permits fell to a 2-1/2-year low in November, while previously owned home sales fell for the 10th straight month, the longest such streak since 1999.

According to Freddie Mac data, the 30-year fixed mortgage rate surpassed 7% in October for the first time since 2002. The average rate on a 30-year fixed-rate mortgage dropped to 6.27% this week after vaulting above 7% a few months ago, which was the highest since 2002. The rate, however, is more than double what it was this time a year ago, data from mortgage finance agency Freddie Mac showed.

Mortgage rates will fall somewhat in December, and there will be a small burst of activity, but rates are expected to rise again in the new year. And don't expect rates to fall as quickly as they rose this year. The median new home price in November was $471,200, up 9.5% over the previous year. At the end of last month, there were 461,000 new homes on the market, down from 469,000 in October.

Houses under construction made up 62.9% of the inventory, with dwellings still to be built accounting for the remaining 23.2%. Completed houses made up 13.9% of the inventory, far less than the long-term average of 27%. At November's sales pace, it would take 8.6 months to clear the market supply, down from 9.3 months in October.

Housing Market Trends for Sales Prices – December 2022

Low supply continues to support prices to some extent, but the gains are shrinking compared with a year ago. According to the National Association of Realtors®, the median price of an existing home sold in December was $366,900, up 2.3% from the year before. It is still the highest price recorded for December, but annual price gains had been in the double digits last summer.

This marks 130 consecutive months of year-over-year increases, the longest-running streak on record. Properties typically remained on the market for 26 days in December, up from 24 days in November and 19 days in December 2021. Fifty-seven percent of homes sold in December 2022 were on the market for less than a month.

The total housing inventory registered at the end of December was 970,000 units, which was down 13.4% from November but up 10.2% from one year ago (880,000). Unsold inventory sits at a 2.9-month supply at the current sales pace, down from 3.3 months in November but up from 1.7 months in December 2021.

• The median existing single-family home price was $372,700 in December, up 2.0% from December 2021.
• The median existing condo price was $317,200 in December, an annual increase of 3.3%.
• The median price in the Northeast was $391,400, an increase of 1.6% from the prior year.
• The median price in the Midwest was $262,000, up 2.9% from December 2021.
• The median price in the South was $337,900, an increase of 3.5% from this time last year.
• The median price in the West was $557,900, an increase of $200, or less than a tenth of a percent from December 2021.

Housing Prices (Listing Prices) Continue to Trend Upward – December 2022

With a near record-low inventory of previously owned homes, some economists believe higher borrowing costs will have a moderate impact on the new housing market. In the long run, an infusion of newly-built homes could benefit the housing market. But there won't likely be a surge in new inventories this year or even next year. Builders cannot develop new homes quickly enough to meet up with customer demand. Over a decade of underbuilding in the new home sector has increased pent-up demand, despite builders' best efforts to increase inventory.

The December housing data release from Realtor.com® suggests a cooling housing market, with inventory and time on market increasing and listing price growth dropping below 10% for the first time in a year. This gradually cooling housing market is advantageous for purchasers because they may have more selections and more time to make a purchase decision.

The minor rise in the year-over-year loss in pending home inventory compared to the prior month may indicate that the market is stabilizing after pending listing declines deteriorated for 11 consecutive months. In the coming months, the housing market will continue to be influenced by the direction of inflation, mortgage rates, and general economic development.

The national median list price declined to $400,000 in December, down from a record high of $449,000 in June (-11.1%). This represents a yearly growth rate of 8.4%, which is lower than last month’s growth rate of 11.0%. This is the first time that listing price growth has fallen below double digits since December 2021.

There were 54.7% more homes for sale in December compared to the same time in 2021. This means that there were 244,000 more homes available to buy this past month compared to one year ago. While the number of homes for sale is increasing, it is still 38.2% lower than it was before the pandemic in 2017 to 2019. This means that there are still fewer homes available to buy on a typical day than there were a few years ago.

And, for the week ending January 20, 2023, the Housing Market Index showed an uptick in builder confidence even as total construction slowed in December. December sales of existing homes beat expectations despite dropping lower. An ongoing home equity cushion is giving seller's options, but falling sales signal that buyers are still unable or unwilling to wade in.

Looking ahead, the stalemate won’t last forever. Realtor.com’s December housing trends show that although nationwide prices continued to climb, some markets saw mild year-over-year declines in median home list prices. Further, as the number of homes on the market rose, sellers were twice as likely as last year to adjust their prices lower.

Housing Market Trends Regional Statistics (50 Largest Metro Combined Average)

In December 2022, active listing prices in the nation’s largest metros grew by an average of 7.8%. Midwest metros had the highest growth rate in active listing prices, with an average increase of 12.2% over the past year. Home prices in Milwaukee (+46.2%), Memphis (+34.0%), and Miami (+20.4%) saw the biggest increases among large metros.

Southern metros saw the largest increase in the percentage of homes with price reductions (+9.6 percentage points), followed by Western metros (+8.7 percentage points). Phoenix (+17.3 percentage points), Austin (+15.5 percentage points), and Tampa (+15.3 percentage points) had the largest increases in the percentage of homes with price reductions compared to last year.

Region	Active Listing Count YoY	New Listing Count YoY	Median Listing Price YoY	Median Listing Price Per SF YoY	Median Days on Market Y-Y (Days)	Price Reduced Share Y-Y (Percentage Points)
Midwest	28.0%	-19.3%	12.2%	6.5%	5	4.5%
Northeast	16.8%	-21.8%	8.1%	3.9%	5	2.6%
South	103.9%	-17.2%	8.0%	5.7%	13	9.6%
West	110.2%	-32.5%	3.0%	1.1%	18	8.7%

Will Higher Mortgage Rates Crash the Housing Market?

Mortgage rates fell sharply early in the pandemic, reaching historic lows of less than 3% at the start of 2021. The days of sub-3 percent 30-year fixed mortgage interest rates are over. The mortgage rates are rising at the fastest pace in decades. Housing prices are still higher than the previous year despite rising mortgage rates. Mortgage rates are slowing down home prices.

Economists predicted rates to rise by the end of 2022, but the big surge in rates has many analysts wondering what would happen next. It happened faster than many predicted, with rates on 30-year fixed loans breaking through 5 percent in April to the highest level in more than a decade. As mortgage rates rise, competition among those who can afford to buy should continue fierce for the time being.

The economic recovery, particularly inflation, has been very evident in the late epidemic phases, and we now face a backdrop of mortgage rates rising at the quickest rate in decades. As on January 12, 2023, the Freddie Mac fixed rate for a 30-year loan declined from last week to 6.33%, as investors cheered the latest Consumer Price Index data showing a noticeable moderation.

The rate for a 30-year loan has been moving up and down in the 6% – 7% range since September 2022 when it crossed the 6% threshold for the first time in 14 years. Mortgage rates have mirrored the volatility in the 10-year Treasury, as investors wrangle mixed expectations amid an inflow of new economic numbers.

Businesses and investors are constantly observing the Federal Reserve's monetary tightening, keeping an eye out for any indications that the bank may slow the rate of interest rate increases. The CPI statistics for this week demonstrated that the central bank's measures are influencing price increases in the right direction.

The primary indicator increased by 6.5% from the previous year, a notable deceleration from last month's 7.1% increase. While markets are reacting positively to the news, it is important to note that prices continue to rise, with food, electricity, and service costs continuing to rise for the average household.

The NFIB index has fallen to its lowest level since June, indicating that small firms are concerned about a possible economic recession. Nevertheless, people continue to acquire products and services, even if they have to borrow money. The most recent data on consumer credit indicate a 7.1% annual increase, driven by credit card borrowing.

Many customers are borrowing more money to cover their day-to-day expenses as a result of escalating prices and shrinking savings. Contrary to these developments, the labor market remains resilient, with labour shortages continuing to be a primary issue for many businesses. Numerous employees discover that they retain power, particularly when switching employment, and achieve significant wage rises.

Mortgage rates will likely remain within the 6% to 7% range observed over the past five months, as capital market volatility is predicted to persist. Shopping for a mortgage with numerous lenders to acquire the lowest rate and fees might result in not just a cheaper monthly payment, but also savings of tens of thousands of dollars over the life of the loan for homebuyers. This is especially significant given that the monthly payment for a median-priced property is currently $1,990, without taxes and insurance, a 51% increase from January of last year.

As of January 20, 2023, the average mortgage rates came up across the board from a week ago. Rates for 30-year fixed, 15-year fixed, 5/1 ARMs, and jumbo loans all moved up. The average rate for a 30-year fixed mortgage is 6.37 percent, up 6 basis points from a week ago, according to data compiled by Bankrate. A month ago, the average rate on a 30-year fixed mortgage was higher, at 6.56 percent. The average 15-year fixed mortgage rate is 5.62 percent, down 6 basis points since the same time last week.

• At the current average rate, you’ll pay a combined $623.54 per month in principal and interest for every $100k you borrow.
• That's $3.92 higher, compared with last week.
• Monthly payments on a 15-year fixed mortgage at that rate will cost roughly $560 per $100k borrowed.
• Monthly payments on a 5/1 ARM at 5.38 percent would cost about $562 for each $100,000 borrowed over the initial five years
• But with adjustable-rate mortgages, it could ratchet higher by hundreds of dollars afterward, depending on the loan’s terms.

How Mortgage Rates Have Moved in November 2022:

• 30-year fixed mortgage rate: 6.37%, up from 6.31% last week, +0.06
• 15-year fixed mortgage rate: 5.62%, down from 5.68% last week, -0.06
• 5/1 ARM mortgage rate: 5.38%, down from 5.47% last week, -0.09
• Jumbo mortgage rate: 6.37%, up from 6.28% last week, +0.09

Mortgage experts are divided about rate trends in the coming week (January 19-25), but the majority votes for a decline. In response to Bankrate’s weekly poll, 14 percent say rates are going up, 57 percent say rates are going down and another 29 percent say rates will remain the same. Watch for rates to continue to rise until inflation falls below 4 percent.

Today's rates are much higher than they have been in years, which is likely to have a few knock-on consequences in the US housing market – though they are unlikely to produce significant declines in housing prices. While quickly rising mortgage rates may dampen the strong housing demand somewhat, do not anticipate a halt to home price appreciation. A slower rate of appreciation will continue in 2023.

Keep in mind that, despite recent increases, mortgage interest rates are still within reach when seen in historical context (back in 1981, rates topped 18 percent for a 30-year fixed-rate mortgage). If the house you're eyeing is a good fit for your family and won't put you in financial peril, go ahead and buy it. The longer you delay, the more money you'll have to spend on rising rentals and saving for the down payment you'll need to buy a house. It all depends on your financial status and the housing market in the area where you live.

Rising mortgage rates still have the potential to drive a sizable portion of buyers away from the housing market. The last two years have already seen a significant increase in housing prices. When combined with interest rate increases, it may become too much for many homebuyers. When inventory increases and mortgage rates rise, the housing market will continue to soften in 2023.

Even with rising mortgage rates and higher prices, the housing market cannot crash due to low supply and increasing demand as more millennials are projected to buy houses in the years to come. Now millennials make up the largest share of homebuyers in the US, according to a 2020 survey from the NAR. According to a new study by Realtor.com, buying is more cost-efficient than renting in a growing number of the largest cities in the country.

This is encouraging news for the millions of millennials who are approaching the peak homebuying age. Millennials are the largest generation in history, and they are already in their mid-thirties, approaching their prime home-buying years. They were delayed in purchasing a home, but are now back in full force. Thus, we have two, four, or five years of millennial homeownership.

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Sources:

• https://www.realtor.com/research/
• https://www.zillow.com/home-values/
• https://www.bankrate.com/mortgages/todays-rates/
• https://www.realtor.com/research/december-2022-data/
• https://www.nar.realtor/research-and-statistics/housing-statistics/
• https://www.nar.realtor/research-and-statistics/housing-statistics/housing-affordability-index
• https://www.realtor.com/news/trends/housing-market-reset-in-buyer-friendly-direction/