The Honest Broker: Causes of the Slowing Real Estate Market

BY: DIANE LOTT, BROKER

PARADISE FOUND REALTY

As interest rates elevated, it put some much-needed pressure on the housing market after home prices hit record highs across the nation last year. In January, rates did level off, causing some homebuyers to re-enter the market, but a recent uptick in rates suggests the market is going back to a standstill. Many economists remain mixed about whether home prices will continue to decline or even drop at all in 2023.

While housing supply is low, 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 5th 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.

According to Forbes, “As we begin to move through 2023, housing experts maintain a watchful eye on the economy, which continues to be pulled in all directions by high inflation, steep interest rates, ongoing geopolitical uncertainties and recession fears, to name a few.”

In the meantime, the National Association of Realtors believes there are indicators that a housing market correction is underway. For one, mortgage rates are showing some signs of ease from reaching 20-year highs in late 2022. Also, home prices seem to be coming down slowly from recent highs, making it difficult for many homebuyers to access affordable housing. The median existing-home sales price was up 2.3% to $366,900 in December compared to a year ago. Month-over-month existing-home sales prices continued their downward trend and are roughly 11% lower than their record high of $413,800 in June. At the same time, total existing-home sales dropped 1.5% from November to December, marking the eleventh consecutive month of declining sales, and down 34% from a year ago, per NAR.

Housing supply has remained stuck at near historic lows and has propped up demand compared to other downturns, consequently sustaining higher home prices. December’s existing home sales report showed lower sales, lower inventory, and higher prices. Low inventory will continue to be a problem for the housing market throughout 2023. And with 70% of homeowners sitting on a mortgage rate of 4% or less, it’s unlikely to see an inundation of homes soon.