Despite scorching summer temperatures that have gripped many regions of the country, the activity in the housing market remains subdued. The situation has been characterized by a nuanced interplay of various factors, painting a complex picture.
The trajectory of the national average 30-year fixed mortgage rate tells a compelling story. As July drew to a close, the rate settled back to where it had initiated, only to nudge upwards to nearly 7% in the early days of August. This minute shift, quantified in basis points—each equivalent to a hundredth of a percentage point—holds significance in the larger context of mortgage dynamics.
Simultaneously, the landscape of existing monthly home sales unfolded with a 3.3% decline, according to the meticulously tracked data provided by the National Association of Realtors (NAR). This decline manifested across all four major U.S. regions, amplifying concerns and raising questions about the underlying trends in the real estate market.
Remarkably, a milestone was breached in the realm of median existing-home sales during the course of 2023. For the first time, the median price surpassed the $400,000 threshold, soaring to an impressive $410,200. This figure, representing the second-highest price ever documented, stands in the backdrop of an impending possibility—surpassing the pinnacle achieved in June 2022, which saw an all-time high of $413,800.
Amidst the overarching narrative of escalating mortgage rates, a paradoxical vitality has remained infused within the market dynamics. The competition continues to thrive unabated, driven by robust demand that intertwines with the constraints of a tight inventory supply. A pivotal factor contributing to this intricate balance is the decision of homeowners who, having made property acquisitions during a period of historically low interest rates, are opting to remain in their residences.
These multifaceted factors coalesce into what can aptly be described as a perfect storm of affordability crisis. This storm persists, sidelining the aspirations of numerous prospective homeowners who find themselves on the fringes of an increasingly competitive and challenging real estate landscape. As the nation grapples with the intricate tango between soaring prices, mortgage rates, and the aspirations of those yearning for homeownership, the housing market remains a microcosm of both the broader economic landscape and the individual dreams of countless individuals.
Housing Market Forecast for August 2023
The housing market is struggling due to a combination of factors: high mortgage rates, elevated home prices, and limited housing inventory. This trio of challenges is fueling the ongoing housing affordability crisis. Additionally, concerns linger about the impact of high inflation and the possibility of further interest rate hikes.
Mortgage rates experienced an uptick in the early weeks of July, surging to 6.96% by the middle of the month. This increase was linked to the Federal Reserve’s decision to raise the federal funds rate by 25 basis points during its July meeting. The federal funds rate, which influences overnight lending between financial institutions, indirectly affects long-term home loans like 30-year fixed-rate mortgages.
Starting from near-zero levels in March 2022, the federal funds rate has gradually risen to a range of 5.25% to 5.5%. However, it’s expected that the Fed will continue its rate hike strategy. Federal Reserve Chair Jerome Powell indicated that the full impact of the Fed’s actions on the economy is yet to be felt. Powell emphasized that the efforts to control inflation and achieve a 2% target still have a significant way to go.
In June, the Fed revealed updated projections indicating that the rate could reach 5.6% by the close of 2023. This projection implies the likelihood of at least one more rate increase within the year. Consequently, experts anticipate that mortgage rates will likely remain above 6% for the remainder of this year. As a result, the housing market’s challenges, including high mortgage rates and persistent affordability concerns, are expected to persist in the coming months.
Will Housing Market Crash in 2023?
Between March and May, the S&P CoreLogic Case-Shiller Home Price Index indicated a consistent upward trajectory in home prices, despite elevated interest rates. While the U.S. National Home Price index reported slight month-over-month and year-over-year declines, regional variations were notable. Surprisingly, cities like Chicago, Cleveland, and New York outperformed traditionally top-ranked cities such as Las Vegas, Phoenix, Tampa, and Miami.
Craig J. Lazzara, Managing Director at S&P DJI, highlighted this shift, noting that the latest data reflected an unexpected trend, with the “Revenge of the Rust Belt” cities taking the lead in price growth.
During this period of spring home buying, average 30-year fixed interest rates briefly dropped below 6.5%, even reaching as low as 6.27% for a week. This dip in rates encouraged buyers, leading to increased demand in the housing market. However, the persistently limited housing supply maintained upward pressure on prices. Hannah Jones, Economic Research Analyst at Realtor.com, noted that while demand was fueled by slightly lower rates, competition remained intense due to low inventory levels.
Conversely, the West Coast saw a decline in home values, particularly in pandemic boomtowns such as Seattle (-11.3%) and San Francisco (-11.0%). The overall West region experienced a decline of -6.9%, marking the weakest performance across the nation.
Despite these fluctuations, experts emphasize that the current housing market is more stable than the aftermath of the 2008 financial crisis. Many homeowners now have positive equity in their homes, bolstering their financial standing. As a result, the risk of a housing market crash is considered low. Nicole Bachaud, an economist at Zillow, underscores the substantial homeowner equity in recent decades, providing a buffer against market instability.