Rosalind Evans
As 2023 drew close, the United States housing market experienced its most significant downturn since 1995. The National Association of Realtors reported a notable slump in December home sales, reflecting a broader trend of market contraction. This decline culminated in a year characterized by economic challenges, fluctuating mortgage rates, and shifting regional trends. Despite these difficulties, industry experts anticipate potential recovery signs as the new year unfolds.
The Downturn in Detail
In December, sales of previously owned homes dipped by 1%, culminating in 3.78 million units, as per seasonally adjusted annualized figures. This represented a 6.2% decrease compared to December 2022 and was the lowest since August 2010. The full-year sales for 2023 amounted to a mere 4.09 million units, a low not seen since 1995. The sales varied regionally, with noticeable declines in the Midwest and South, a stagnation in the Northeast, and a surprising rebound in the West.
Mortgage Rate Influence
The year-end count of home closings largely stemmed from contracts signed during high mortgage rates in late October and November. The average rate on a 30-year fixed loan peaked at around 8% in October, then dropped to the 7% range in November, settling at 6.89% by year-end. Lawrence Yun, the chief economist at NAR, optimistically stated, “The latest month’s sales look to be at the bottom before inevitably turning higher in the new year. Mortgage rates are meaningfully lower compared to just two months ago, and more inventory is expected to appear on the market in upcoming months.”
Inventory and Pricing Dynamics
While inventory declined by 11.5% from November to December, it saw a 4.2% increase from December 2022. The end of December witnessed 1 million homes for sale, yielding a 3.2-month supply at the current sales pace, well below the six-month supply, indicating a balanced market. Despite the tight supply, home prices continued to rise, with the median price in December reaching $382,600, a 4.4% increase from the previous year.
Market Influences and First-Time Buyers
The market saw an increased average duration of homes and a higher share of all-cash sales, primarily driven by individual investors. However, the pullback in investor activity may present an opportunity for first-time buyers, who comprised only 29% of December sales, significantly below the historical average. Danielle Hale, Chief Economist at Realtor.com, noted, “With rents continuing to ease and more multi-family homes entering the market for rent, investors may continue to tread more cautiously in the housing market.”
The 2023 housing market experienced significant challenges, marked by declining sales and shifting dynamics. However, the year’s end hinted at potential recovery, driven by lower mortgage rates and changing investor behaviours. As we enter 2024, the market may offer new opportunities, particularly for first-time buyers, despite the ongoing challenges of finding affordable homes.
