US Housing Market Archives

Housing Market Predictions | Real Estate Market Forecast 2023

January 30, 2023 by Marco Santarelli

Housing Market Predictions & Forecasts

Will a seller's market be prevalent in real estate in the future due to increasing demand and limited supply? Housing demand is influenced by interest rates, unemployment, home price inflation, income growth, the availability of easy credit, etc. The economy is predicted to grow in the next years, pre-pandemic working conditions will return, and a range of other factors will most likely contribute to the success of the housing market.

Home prices are still rising year after year, though not as dramatically as they were earlier this year. The level of mortgage rates in 2023 will most likely influence how much home values fall. The real estate markets are significantly impacted by interest rates because as interest rates fall, so do mortgage payments, increasing demand for real estate and driving up prices.

The housing market saw an incredible year last year, with record-low interest rates, the strongest yearly growth in single-family values and rentals, a generational low in foreclosure rates, and the highest number of home sales in 15 years. As numerous buyers battled for the winning bid, house sellers witnessed a market in which their properties sold rapidly and frequently for prices over the listing price.

2022 was also predicted to be a prosperous year for the housing market but rising inflation and mortgage rates changed its outlook completely. Compared to the previous year, the housing market has significantly cooled, with home sales declining and prices rising at a moderate rate. In this blog post, we will discuss the latest housing market predictions for 2023.

Also Read: US Housing Market Trends in December 2022

There are still many concerns regarding the housing market. Critically, despite the fact that shortage of supply has been one of the primary drivers of home price growth, rising interest rates are deterring both potential sellers and new construction. As a result, there is no hope for an improvement in the housing supply and a sustainable housing market that would result from an increase in inventory.

The large and sudden increase in mortgage rates that occurred this year rendered an already expensive housing market far less affordable. Home prices experienced a meteoric rise in the early years of the pandemic for a number of reasons, including the fact that demand was at an all-time high, supply was at an all-time low, and mortgage rates reached a number of all-time lows.

The current housing market trends indicate buyers remain interested, keeping the market somewhat competitive, especially for attractive, well-priced homes. However, some factors may influence the market's pace or whether it favors buyers or sellers. Higher mortgage rates and recession fears have cooled housing markets from early spring highs. The market is shifting away from sellers to more balanced conditions.

A little pressure on home price growth will continue through the end of the year, and housing prices will continue to rise due to a supply-demand mismatch. Many experts predicted that the pandemic would result in a housing crash comparable to the Great Depression. That, however, will not happen. Housing prices are unlikely to fall drastically, but they are expected to rise very slowly as compared to last year's pace.

Housing Market Predictions 2023

There is little consensus among economists, mortgage firms, banks, and real estate firms regarding whether the historically tight U.S. housing market will reverse course in 2023. The accounting firm KPMG LLP forecasts that the U.S. housing market would decline by as much as 20% between 2022 and 2023. Goldman Sachs and Wells Fargo estimate the market will decline by 7.5% and 5.5%, respectively. Real estate companies are not optimistic.

The real estate investment firm Amherst predicted a 5% fall in the market, while Redfin predicted a 4% decline. Even federal mortgage supporters Freddie Mac and Fannie Mae anticipate a 0% to 2% decline in the market. On the other side, the Mortgage Bankers Association anticipates a 0.7% increase in the housing market, while CoreLogic predicts a 4.1% increase. Realtor.com forecasts a 5.4% increase, the National Association of Realtors forecasts a 1.2% increase, and Home.LLC forecasts a 4% increase.

Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors, predicts that 4.78 million existing homes will be sold, prices will remain constant, and Atlanta will be the top real estate market to monitor through 2023 and beyond. Half of the country may witness minor price increases, while the other half may see minor price decreases.

Housing sales will decline by 6.8% compared to 2022 (5.13 million) and the median home price will reach $385,800 – an increase of just 0.3% from this year ($384,500). In 2023, the NAR's top 10 housing markets will include Atlanta, Raleigh, Dallas, Fayetteville, Ark., and Greenville, S.C., in addition to five new metropolitan regions.

As housing demand continues to decelerate and both buyers and sellers attempt to regain their footing, it is important to remember that the surge in housing demand in 2021 was fueled by unusual circumstances, such as COVID-19-induced demand for more space and vacation homes, as well as record-low mortgage rates.

The positive outlook is that most real estate firms do not predict a financial or foreclosure crisis on the scale of 2008, but they do expect housing fundamentals to return to the mean. Some of that moderation will be brought about by growing salaries, while some will be brought about by declining home prices. The housing market won't be overvalued after this correction is over.

CoreLogic’s most recent Loan Performance Index shows that, despite 2022’s surge in mortgage rates, almost all borrowers were able to meet their monthly payments during the year. For the first 10 months of 2022, the number of homeowners with a mortgage who were at least 30 days late on their payments hovered between 3.4% and 2.7%, with the latest data reporting a 2.8% overall delinquency rate in October. On an annual basis, mortgage delinquencies dropped for the 19th consecutive month in October.

Foreclosure rates remained near record lows throughout most of 2022, bottoming out at 0.2% in February and remaining at 0.3% through October. The fact that 99% of borrowers have locked in a mortgage rate that is lower than current rates helps prevent most homeowners from making late payments or defaulting on them altogether.

The firm that has a bullish forecast for 2023 includes Zillow. The latest housing forecast produced by Zillow economists has U.S. home values falling just 1.1% between November 2022 and November 2023. Meanwhile, the relatively bearish camp includes firms like Moody's Analytics. Its forecast has national home prices falling 5.1% between the fourth quarter of 2022 and the fourth quarter of 2023. Among the 897 markets Zillow measured, it expects 658 markets to see falling home prices between November 2022 and November 2023.

That includes markets like San Jose (-7.2% projection); Grand Forks, N.D. (-6.7%); Odessa, Texas (-6.4%); San Francisco (-6.1%); and Santa Rosa, Calif. (-5.3%). Meanwhile, Zillow expects 239 markets to see positive or flat home price growth between November 2022 and November 2023. That includes markets like Atlantic City, N.J. (+4.2% projection); Homosassa Springs, Fla. (+4.2%), and Yuma, Ariz. (+3.7%).

According to the latest report published by Fortune, the ongoing home price correction—which saw U.S. home prices decrease 2.4% between June and October—has been moderate. However, economists and experts disagree on whether this is a modest setback for home price increases or the start of a sharper correction.

According to the forecast by Moody's Analytics, the national home prices will fall 5.1% between the fourth quarter of 2022 and the fourth quarter of 2023. Peak-to-trough, Moody's expects U.S. home prices to fall 10%. Among the 322 regional housing markets analyzed by Moody's, 178 markets are expected to see at least a 5% decline in home prices between the fourth quarter of 2022 and the fourth quarter of 2023.

That includes markets like Morristown, Tenn. (-10.3% projection), Pocatello, Idaho (-9.9%), Muskegon, Mich. (-9.7%); Boise (-9.5%), and Santa Cruz, Calif. (-8.8%). Peak-to-trough, Moody's expects U.S. home prices to fall 10%. Keep in mind when a group like Zillow or Moody's Analytics says “U.S. home prices,” they're talking about an aggregated view of the country. In regional housing markets—heck, in each neighborhood—the results could vary significantly.

Low inventories will prevent home prices from declining. Strong job growth, low inventories, and tight supply will cause unequal price movements. Lower price tiers are more susceptible to interest rate hikes, while higher price tiers are more resistant to price decreases. The mix of homes that sell may be smaller on average as the market reacts to increasing mortgage rates and decreased affordability.

Housing Price Trends & Forecast Until November 2023

CoreLogic HPI™ is designed to provide an early indication of home price trends. The CoreLogic Home Price Insights report features an interactive view of its Home Price Index product with analysis through November 2022 with forecasts through November 2023. United States home prices nationwide, including distressed sales, increased year over year by 8.6% in November 2022 compared with November 2021.

On a month-over-month basis, home prices declined by 0.2% in November 2022 compared with October 2022. The CoreLogic HPI Forecast indicates that home prices will decrease on a month-over-month basis by 0.1% from November to December 2022 and on a year-over-year basis by 2.8% from November 2022 to November 2023.

The report also shows that in November, year-over-year home price growth stopped its 21-month stretch of double-digit momentum with an 8.6% increase, the lowest rate of appreciation in precisely two years. In spite of the fact that 16 states defied the national trend and experienced double-digit yearly price rises, appreciation is slowing in many of the nation's most desirable housing areas. The Southeastern states still topped the nation in terms of price rise, but they also experienced some of the most dramatic cooling.

Comparatively, somewhat more costly Western regions have also experienced significant reductions in recent months after the spring peak. Nationwide, the recent price deceleration pushed November home values 2.5% below the spring 2022 peak. In 2023, home values will likely move even further from that high point, as CoreLogic expects price growth to begin recording negative year-over-year readings in the second quarter.

No states posted an annual decline in home prices. The states with the highest increases year over year were Florida (18%), South Carolina (13.9%), and Georgia (13.6%). These large cities continued to experience price increases in November, with Miami again on top at 21.3% year followed by Houston at 10.6%, Phoenix at 8.1%, and Las Vegas also at 7.7% year over year.

Current Home Price Trends — Source: CoreLogic

Top Markets at Risk of Home Price Decline in 2023

The CoreLogic Market Risk Indicator (MRI), a monthly update of the overall health of housing markets across the country, predicts that Bellingham, WA is at very high risk (70%-plus probability) of a decline in home prices over the next 12 months. Crestview-Fort Walton Beach-Destin, FL; Salem, OR; Merced, CA and Urban Honolulu, HI are also at very high risk for price declines.

CoreLogic Market Risk Indicators is a multi-phase regression model that provides a probability score (from 1 to 100) on the likelihood of two scenarios per metro: a >10% price reduction and a ≤ 10% price reduction. The higher the score, the higher the risk of a price reduction. CoreLogic is a leading global property information, analytics, and data-enabled solutions provider.

Top Markets at Risk of Home Price Decline in 2023 — Source: CoreLogic

Housing Market Forecast & Sentiment 2023 (Freddie Mac)

According to Freddie Mac, there are currently 18 percent more persons aged 25 to 34 than there were in 2006. This represents an increase of 6.6 million prospective first-time homeowners, from 39.5 million in 2006 to 46.1 million today. In addition to the increase in first-time homebuyers, the number of high-income renters who can afford to buy and are of prime first-time homebuyer age has also been growing.

In 2006, lending criteria were significantly loosened, and little examination was done to determine whether or not a borrower could repay their loan. These days, the requirements are more stringent, which lowers the risk for both the lenders and the borrowers. Consistent with a more challenging housing market for buyers, the share of buyers that faced at least one mortgage denial before getting approved grew from 22% in 2020 to 34% in 2021.

The government and jumbo segments had the most significant tightening in the previous month. These two housing markets couldn't be more different from one another, and the current situation is in no way comparable to that of the past. The Mortgage Credit Availability Index (MCAI) is an index that is released regularly throughout the year by the Mortgage Bankers Association (MBA). This index is used to measure how simple it is to get a mortgage.

The higher the index is, the more options there are for obtaining mortgage finance. In 2004, the index was hovering around the 400 mark. As the housing market heated up, mortgage loans became more available, and then in 2006, the index surpassed 850. The mortgage credit availability index (MCAI) fell as a result of the fall in the real estate market since it became nearly hard to get mortgage financing.

Since then, thankfully, the conditions for lending have been relaxed a little bit, although the index is still relatively low. The index had a reading of 103.3 in August 2022, which is around one-seventh of what it had been in 2006. It fell by 0.1 percent to 103.3 in December. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit.

Mortgage credit availability was mostly unchanged in December as mortgage rates remained significantly higher than the prior two years and both refinance and purchase activity slowed dramatically The Conventional MCAI decreased 0.1 percent, while the Government MCAI decreased by 0.1 percent.

Of the component indices of the Conventional MCAI, the Jumbo MCAI decreased by 0.2 percent, and the Conforming MCAI was unchanged. The segment of the market which showed the sharpest decline in credit availability was FHA and VA lending –which saw a 23 percent decline over 12 months.

Mortgage Credit Availability Index Trends — Source: Mortgage Bankers Association

Over the past decade, chronic underbuilding and the influx of millions of millennials into the homebuying market have resulted in a major mismatch in housing supply and demand. Even though mortgage rates are skyrocketing, the housing market is not going to crash any time soon. The result will be a much slower rate of appreciation than in the past two years. We are predicting the housing market for the next 5 years and to recognize patterns that may influence real estate values and rentals beyond a year.

Freddie Mac's own regression research indicates that a 1 percent rise in mortgage rates reduces home price increases by around four percentage points (for example, moving from 11 percent home price growth a year to 7 percent ). In contrast, analysts at J.P. Morgan expect a greater impact of around six percentage points lower home price increase.

Since home values are so high, the housing market may be more susceptible to rate increases than in the past; therefore, the greater estimate appears realistic. While it seems apparent that rising interest rates will reduce housing demand by reducing affordability, the actual past is a significantly less reliable indicator of what will occur because of a huge balancing impact – interest rates often rise when the economy is expanding.

The government-sponsored enterprise forecasts that for every one percentage point increase in mortgage rates, house sales would decrease by around five percent, and price growth will slow by four to six percentage points. If mortgage rates stabilize at current levels, and all other factors remain constant, their analysis predicts a much slower, but still positive house price rise with a wide regional range depending on migration trends.

As work-from-home becomes increasingly popular, it is anticipated that the housing market will continue to be undersupplied and that migration to lower-cost areas will continue to rise. This is significant since most booming cities have a major housing shortage due to a previous inflow of population.

Finally, favorable demographics suggest that the robust demand for first-time homebuyers will persist. This is due to the fact that there are still a substantial number of younger renters with sufficient income to sustain homeownership, and they should continue to be a formidable force for the foreseeable future. As the economy faces various headwinds in 2023, these variables should continue to exert a substantial influence on the housing market.

Freddie Mac's Economic & Housing Research Group in its latest forecast has predicted mortgage rates dropping from an average of 6.8% in the fourth quarter of 2022 to 6.2% in the fourth quarter of 2023. The housing market rapidly decelerated last year as markets absorbed the impact of higher mortgage rates. Home sales have fallen to a forecasted 5.4 million units at a seasonally adjusted annual rate in the third quarter of 2022 from 7 million earlier this year.

Housing Market Predictions — Source: Freddie Mac

Home purchase mortgage applications point to a continued contraction in home sales activity. The government-sponsored enterprise forecasts that home sales activity will bottom at around 5 million units at the end of 2023. Falling from 7 million to 5 million would be a decline of about 30% and put the contraction in home sales in line with other historical periods when interest rates increased.

As housing market activity continues to contract, Freddie Mac expects that it will lead to a continued increase in the months’ supply of homes available for sale from historically low levels last year. The loosening of the once incredibly tight for-sale inventory removes the intense upward pressure on home prices of the past two years. While fewer sales are increasing the months’ supply, that is partially offset by fewer new listings as high mortgage rates disincentivize existing homeowners from moving up or downsizing.

They expect house prices to decline modestly, but the downside risks are elevated. As the labor market cools off, housing demand will remain weak in 2023, potentially resulting in declines in prices next year. However, home price forecast uncertainty is wide due to interest rate volatility and the potential of a recession on the horizon.

Given the house price and home sales forecast, they estimate home purchase mortgage originations to be $1.9 trillion in 2022, slowing to $1.6 trillion in 2023. With mortgage rates expected to remain elevated, they forecast refinance activity to slow with refinance originations declining from $2.8 trillion in 2021 to $747 billion in 2022 and $310 billion in 2023. Overall, their forecast is that total originations will decline from the high of $4.8 trillion in 2021 to $2.6 trillion in 2022 and $1.9 trillion in 2023.

The quarterly housing outlook pulse poll conducted by Freddie Mac assesses public attitudes on housing-related problems. In the fourth quarter of 2022, market confidence fell to its lowest point since tracking began in March 2020. The likelihood of buying or refinancing a home remained flat quarter-over-quarter, while payment concerns spiked among both homeowners and renters.

34% are confident the housing market will remain strong over the next year. This is down 12 percentage points from last quarter.

57% of renters and 25% of homeowners spend more than 30% of their monthly income on housing.

This is down 3 percentage points and up 1 percentage point, respectively, from last quarter.

21% are likely to buy a home in the next six months, a 2-percentage point increase from last quarter.

14% of homeowners are likely to sell in the next six months, a 1-percentage point decrease from last quarter.

17% of homeowners are likely to refinance in the next six months, a 1-percentage point increase from last quarter.

57% of consumers are concerned about making housing payments, with concern increasing among both renters and owners since last quarter.

70% of renters (an 8-percentage point increase from last quarter) and 44% of homeowners (a 7-percentage point increase from last quarter) are concerned about making housing payments.

Housing Market Outlook — Source: Freddie Mac

Housing Market Crash Predictions For Next Few Years

The housing market is far better than it was a decade ago. Last year, the housing industry experienced a boom, with the most significant annual increase in single-family house values and rentals, historically low foreclosure rates, and the highest number of home sales in 15 years, totaling 6.9 million for the entire year. Over the previous two years, national home prices increased by 33%.

The market was driven by record-low borrowing rates in 2020 and 2021, as well as a supply constraint due to underbuilding. The enormous demand from first-time buyers is almost as important as the limited new supply. The current housing market is also being driven by exceptionally favorable age demographic trends.

The overarching concern is whether or not the housing market will crash, and if so, when. The simple answer is that it will not crash anytime soon and we certainly don't see a housing market crash coming in 2023. Rising rates are cooling the market as some expected but the prices are still rising at a slower rate. The current trends and the forecast for the next 12 to 24 months clearly show that most likely the housing market is expected to see a positive home price appreciation.

In recent years, the price of homes has climbed dramatically. Many prospective buyers, especially those with limited financial resources, are eager to hear whether and when home prices will become more accessible. Here is when housing market prices are going to crash. While this may appear to be an oversimplification, this is how markets operate.

When demand is satisfied, prices fall. In many housing markets, there is an extreme demand for properties at the moment, and there simply aren't enough homes to sell to prospective buyers. Home construction has been increasing in recent years, but they are so far behind catching up. Thus, to see significant declines in home prices, we would need to see significant declines in buyer demand.

Demand declines primarily as a result of rising interest rates or a slowing economy in general. Ultimately, for rising interest rates to destroy home values, we'd need substantially less demand and far more housing supply than we presently have. Even if price growth moderates this year, it is extremely improbable that home prices will crash. Thus, there will be no crash in home prices; rather, there will be a pullback, which is normal for any asset class. The home price growth in the United States is forecasted to just “moderate” in 2023.

Affordability will be a concern for many, as home prices will continue to rise, if at a slower pace than the previous year. With 10 years having now passed since the Great Recession, the U.S. has been in the longest period of continued economic expansion on record. The housing market has been along for much of the ride and continues to benefit greatly from the overall health of the economy.

However, hot economies eventually cool and with that, hot housing markets move more toward balance. Housing market forecasts are essentially informed guesses based on existing patterns. While the real estate pace of last year appears to be reverting to seasonality as we enter 2023, demand is not waning.

Increasing interest rates will almost certainly have a greater impact on the national housing market in 2023 than any other factor. While sellers remain in an advantageous position, price stability and the continuation of competitive interest rates may provide some much-needed relief to buyers this year. Housing supply is and will likely remain a challenge for some time as labor and material shortages, as well as general supply chain issues, delay new construction.

The latest housing market trends show that prices are rising in most parts of the country and most price segments because of the lack of supply. Economic activities are ramping up in all sectors, mortgage rates are rising, and jobs are also recovering. The housing market remains largely a moderate seller's market due to demand still outpacing supply. The inventory of available houses continues to be a constraint on both buyers and sellers.

Forecasting home price appreciation is a challenging task. While inventory has increased slightly, it remains significantly below pre-pandemic levels and is simply unable to meet current demand. Tight supply following years of underbuilding, combined with increased demand due to remote work, and US demographics — will continue to be a factor in 2023. It will continue to be a moderate or balanced real estate market in 2023 & 2024.

References

https://www.realtor.com/research/
https://www.realtor.com/research/blog/
https://www.bankrate.com/mortgages/mortgage-rates/
https://www.blackknightinc.com/
https://www.freddiemac.com/research/forecast
https://www.yahoo.com/video/moody-home-prices-crash-20-142931780.html
https://www.realtor.com/research/2022-national-housing-forecast-midyear-update/
https://www.nar.realtor/research-and-statistics/housing-statistics/
https://www.corelogic.com/intelligence/u-s-home-price-insights/
https://www.zillow.com/research/daily-market-pulse-26666/
https://www.fhfa.gov/DataTools/Downloads/Pages/House-Price-Index.aspx
https://www.realtor.com/research/2021-national-housing-forecast/
https://www.investopedia.com/personal-finance/how-millennials-are-changing-housing-market
https://www.freddiemac.com/research/consumer-research/20221220-housing-sentiment-fourth-quarter-2022

Housing Market Trends 2023: Will the Market Rebound?

January 22, 2023 by Marco Santarelli

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.

Existing home sales trends — Source: N.A.R.

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.

new home sales trends — Source: The U.S. Census Bureau

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.

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/