Skyrocketing interest rates put some much-needed pressure on the housing market after home prices hit record highs across the nation last year. While rates did level off through January, causing some homebuyers to re-enter the market, a recent uptick in rates suggests the market is going back to a standstill.
That said, the nation’s overall housing supply remains limited, as those who purchased homes in recent years at extremely low mortgage rates are staying put. In addition, new home construction fell again in January—the fifth straight month of declines—adding to the longstanding inventory problem. Tight inventory has kept prices from substantially dropping off, making homes still unaffordable for many, especially first-time homebuyers.
“It seems we have already reached the bottom of the low home sales activity,” says Nadia Evangelou, senior economist and director of forecasting for the NAR. “And with mortgage rates stabilizing near 6%, we expect the housing market to turn around in 2023…and rebound in 2024.”
Low housing inventory has been a challenge since the 2008 housing crash when the construction of new homes plummeted. It hasn’t fully recovered—and won’t in 2023. Housing supply remaining stuck at near historic lows has propped up demand compared to other downturns, consequently sustaining higher home prices.
“December’s existing home sales report hit the losing trifecta of lower sales, lower inventory and higher prices,” says Robert Frick, corporate economist at Navy Federal Credit Union. At the current sales pace, inventory is at a 2.9-month supply, according to NAR. This figure is down from 3.3 months in November, though up from 1.7 months in 2021.
Based on this and other data, industry experts have a gloomy outlook on when inventory will eventually normalize. “I believe that we’re likely to see low inventory continue to vex the housing market throughout 2023,” says Rick Sharga, executive vice president of market intelligence at ATTOM Data. And with 70% of homeowners sitting on a mortgage rate of 4% or less, Sharga says we’re unlikely to see an inundation of homes soon.
Due, in part, to the ongoing inventory problem keeping home prices elevated, many economists predict the housing market is more likely to correct itself from the double-digit percentage jumps seen in home prices the past few years rather than crash. “After a big boom over the past two years, there will essentially be no change nationally” in home prices in 2023, said Yun.
All signs point to a normal improvement in activity into 2023’s Spring Selling season. With inventory low, interest rates stabilizing, and employment in United States still strong, the Spring months of April and May will look to again highlight the strong Sellers Market that characterized 2021 and 2022.
