The housing market has been a topic of concern in recent years, with high home prices making it difficult for many to access affordable housing. However, there is hope that the situation may improve in 2023. The declining trend of mortgage rates that brought some prospective buyers back to the market in early 2023 has ended, and home sales prices have continued their downward slide.
Economists are, however, mixed about how much more home prices will drop this year. Limited housing supply remains a significant issue. Many people who purchased homes in recent years at record-low interest rates are staying put, and new home construction fell again in January, exacerbating the inventory problem. Tight inventory issues, in part, are keeping prices from dropping off, perpetuating affordability challenges for many, especially first-time homebuyers.
Despite this, home prices remain high year-over-year, but they are not as eye-popping as they were in early 2022. Even so, how much further home prices dip in 2023 will likely depend on where mortgage rates go. High interest rates coupled with appreciated home values still make it difficult for many prospective buyers to access affordable housing. The median existing-home sales price was up 1.3% to $359,000 in January compared to a year ago, according to the National Association of Realtors (NAR).
Though this is the 131st consecutive month of year-over-year price increases—a record streak—the increase was at a slower pace compared to December. Month-over-month existing-home sales prices continued their downward trend and are roughly 13% lower than their record high of $413,800 in June 2022. Mortgage rates ticked up again, erasing much of the recent declines after hitting a 20-year high of 7.08% in the fall. Total existing-home sales dropped 0.7% from December to January, marking the 12th consecutive month of declining sales and down 36.9% from a year ago.
Despite these challenges, some experts say that home shoppers have reason to be hopeful. Low housing inventory has been a challenge since the 2008 housing crash when the construction of new homes plummeted. It has not fully recovered and will not in 2023. At the current sales pace, inventory is at a 2.9-month supply, according to NAR. This figure is unchanged from December, though up from 1.6 months a year ago. Industry experts have a gloomy outlook on when inventory will eventually normalize. They believe that low inventory will continue to vex the housing market throughout 2023, and with 70% of homeowners sitting on a mortgage rate of 4% or less, an inundation of homes is unlikely soon.
Single-family construction starts in January were down 4.3% from December, and applications for building permits declined by 1.8% from the previous month. That’s a sluggish start for new construction, but the latest builder outlook data reflects optimism. The latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), which tracks builder sentiment, rose seven points, from 35 to 42. This is the second month-over-month increase following 12 consecutive months of declines. Builder confidence is still low, however, so there will need to be more consecutive upticks before a significant rebound in new construction is seen.
In conclusion, the housing market in 2023 remains a mixed bag. Limited housing supply, high interest rates, and tight inventory issues are keeping prices from dropping off, perpetuating affordability challenges for many. While there is hope that inventory levels will approach normal numbers in the future, this is unlikely to happen in 2023.