How are Home Prices Doing in 2023?

With 30-year fixed mortgage rates above 7%, the monthly burden is too heavy for many prospective buyers. As a result, home sales sagged in July 2.2% to a six-month low, with all four major U.S. regions reporting declines compared to last year, according to the National Association of Realtors (NAR). And according to the Wall Street Journal (WSJ) of 9/23/23, “Sales of previously owned homes fell in August to the slowest pace since January as high mortgage rates stifled demand.” The WSJ adds, “Existing, home sales which make up most of the market, decreased 0.7% in August from the prior month … [and] August sales fell 15.3% from a year earlier. [But] the national existing median home price rose 3.9% from a year earlier.”

So, while The Federal Reserve’s almost monthly rate hikes have driven mortgage rates higher and higher, many buyers are pushed to the sidelines. But, nevertheless, the scarcity of homes which are for sale has driven prices higher for those homebuyers still in the market. People who are holding low mortgage rates of around 3 or 4% see no reason to move to a new home and pay a rate above 7%.

Again, the WSJ: “Nationally, there were 1.1 million homes for sale or under contract at the end of August, down 0.9% from July and down 14.1% from August of last year.” This stat represents the lowest inventory level for any August dating back to 1999. Currently the inventory of unsold existing homes for sale is at about 3.2-month supply; most experts believe that a healthy housing market has an inventory of about four-to-six-months.

For a housing recovery to occur, existing inventory must increase from the historic lows where they are currently. Secondly, interest rates must decline substantially. For 2022, home sales were down a staggering 16.6 percent (according to the NAR), again due to high rates and lack of inventory.

Lawerence Yun, chief economist at NAR, sees a glimmer of hope going forward. “Home sales are essentially bottoming out this year … before [an] anticipated upturn going into next year, but this is contingent on mortgage rates falling.” But remember home sales fell, not home prices due to lack of inventory and potential sellers deciding not to move to another home and assume a much higher mortgage than he/she is currently holding.

Yet despite high mortgage rates, new home sales rose 4.4% In July, (not overall home sales) which continued a four-month trend. Some people who can afford the high rates simply have to move due to expanding families, etc. “With low existing home inventory, new home inventory is becoming competitive, and new homes are now competitive on price,” said Robert Frick, corporate economist with Navy Federal Credit Union. The median home sale price which stood at only $417,000 in April, has now risen to $436,000 according to the U.S. Census Bureau.

Yet in this complex market, according to Fannie Mae, 82% of Americans are putting home buying plans on hold.

So, while new home sales are rising, troubled waters may lie ahead.

Conclusion: New home sales are rising. Existing and overall home sales are falling, and home prices are rising.

Digesting all of this may not be easy, but this is where the current market stands.