Heading into the second half of 2023, the US housing market has yet to see the typical spring and summer boom, as limited inventory and high borrowing costs dampen the market.
Mortgage rates are elevated, leading to low inventory as many potential buyers wait for rates to drop before looking for a new home. Would-be sellers with cheap mortgages are holding off, unwilling to go back into the market and paying more.
As a result, sales have dropped, according to an analysis by Realtor.com. The real estate listing site changed its outlook on prices, now predicting they will gradually fall in the second half of the year. Previously, Realtor.com had forecast prices to rise.
- Mortgage rates are expected to cool to around 6% before the end of the year.
- Home prices are anticipated to fall 0.6% year-over-year.
- Existing home sales are anticipated to drop 15.8% before the end of the year.
The biggest factor cooling the market is mortgage rates. According to Realtor.com, rates are expected to end the year near the 6% mark, pending further rate hikes from the Federal Reserve. With rates that high, sales are expected to slow down, dropping 15.8% for the year.
Home prices will fall 0.6% year-over-year by the time 2024 rolls around, according to Realtor.com. The group originally anticipated home prices would grow 5.4% throughout the year.
No Consensus on Second Half of Year
A report by brokerage Redfin drew contradictory conclusions for the month of June, saying home prices could continue to rise if more buyers came into the market and competed for the limited supply of homes for sale. As buyers become accustomed to higher mortgage rates, bidding wars are even breaking out in some markets, according to Redfin.
While competition varies between markets, a lack of available homes is fueling bidding wars in some areas, Redfin found. For example, Rochester, NY homes are selling for 14.1% more than their asking price, while Austin, Texas homes are selling for 2.1% less. Nearly half (46.8%) of the home offers written by Redfin agents encountered competition in June.
Mortgage Rates, Larger Economic Trends Determining the Market
According to Realtor.com, more than four in five home shoppers felt locked in by their current low-rate mortgage, making them reluctant to sell and wade into the market again. Another one in seven homeowners reported choosing not to sell because of their low rate.
For those who have been waiting for rates to cool before entering the market, things could be looking up slightly before the end of the year. Realtor.com anticipates rates will be closer to 6.0% before yearend. That may depend on the Federal Reserve’s efforts to cool inflation, and the group signaled that two more hikes could be possible before the end of the year.
While wages have grown and employment is strong, inflation is still impacting the housing market, according to Realtor.com. Ongoing spending is supplemented by a stockpile of coronavirus-era savings, the group said, but those resources are on track to be depleted by 2024.
With Weakened Market, Sales Expected To Slip
While Realtor.com originally anticipated a bump in home prices in 2023, they have revised their forecast to show median prices dropping 0.6% this year. The group also had previously forecast a 14.1% decline in SALES throughout the year, but now sees a decline of 15.8%.
Realtor.com also revised their existing home inventory forecast to being down 5% from their original prediction of a 22.8% inventory increase.
Although new housing starts are picking up to help close the single-family home gap, those were also revised downward by Realtor.com. Single-family starts are predicted to finish the year at about 800,000, down 19.6% year-over-year. Originally, starts were expected to slip only 5.4% year-over-year.