2023 Mid Year Outlook

by David Dell'Olio

2023 Mid Year Outlook

The prospects for the U.S. housing market in the second half of the year will heavily depend on mortgage rates. Throughout the first half, elevated rates have stagnated the housing market, discouraging potential buyers and causing homeowners with mortgage rates below 3% to hesitate selling, considering that their next home would require borrowing at a rate closer to 7%.

Despite a high demand for housing and a recent decline in home prices, the real estate market is experiencing sluggishness during what is typically its busiest season. While there has been an increase in new construction to address the need for single-family homes, it won't be enough to meet the current demands of the market.

So, what can prospective homebuyers anticipate for the latter half of 2023? Although the Federal Reserve plans to continue raising interest rates throughout the year, industry experts predict that mortgage rates will decrease as home prices become more affordable. This expected shift may lead to an uptick in homebuying activity.

However, it's important to note that few experts are anticipating a full recovery that would match the level of market activity seen in 2022.

The cooling mortgage rates are expected to stimulate an increase in inventory during the second half of the year. However, the chronic shortage of existing homes on the market continues to dampen market conditions. Experts at Fannie Mae anticipate this trend will persist until the end of the year due to ongoing economic slowdown, affordability constraints, and limited availability of homes for sale.

On a positive note, the lack of existing home inventory has been advantageous for the new home market. In fact, May experienced the largest monthly surge in single-family housing starts since June 2020.

Compass CEO Robert Reffkin suggests that when mortgage rates drop to around 5.5%, it will likely unlock a significant amount of inventory. This could lead to a flood of available homes in the market reminiscent of pre-pandemic times.

In response to low inventory levels, there has been an uptick in homebuilding across the country. The sale of new single-family homes rose by 20% compared to last year and 12.2% from April.

Overall, while current conditions pose challenges for buyers due to limited choices, there is optimism that increased inventory and robust homebuilding activities will alleviate these constraints in the near future.

2023 Mid Year Outlook

by David Dell'Olio

2023 Mid Year Outlook

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