Skyrocketing interest rates through most of 2022 put some much-needed pressure on the housing market after home prices hit record highs across the nation. However, since December, mortgage rates have been on a steady decline during the first month of the new year. Even so, many economists remain mixed about whether home prices will continue to decelerate throughout 2023—or even drop at all.
For one, 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 December, 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.
Yet, even though home prices remain high year-over-year (YOY), they’re not as eye-popping as they were in early 2022. But how far home prices dip in 2023 will likely depend on where mortgage rates go.
Nevertheless, there are indicators that a housing market correction is underway. For one, mortgage rates are showing signs of ease, with rates now less than double what they were a year ago.
And after a couple of years of a meteoric rise, home prices seem to be coming down to Earth, albeit slowly, 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, according to the National Association of Realtors (NAR). Though this is the 130th consecutive month of YOY price increases—a record streak—the YOY increase was at a slower pace compared to November. 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.
In the meantime, while higher housing costs have kept many home shoppers on the sidelines, it appears some prospective buyers are trickling back, thanks to the recent decline in rates. Mortgage applications increased 7% from the week before, according to the Mortgage Bankers Association.
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.
Despite all these mixed messages, some experts say that home shoppers have reason to be hopeful in 2023.
“Markets in roughly half of the country are likely to offer potential buyers discounted prices compared to last year,” said Lawrence Yun, chief economist at NAR.
Others expect increased sales activity as home shoppers trickle back this year, eventually leading to a full-on housing market resurgence.
“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.”
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