Housing Market Facing Transition Period Amid Slowing Price Growth, Rising Rates
The U.S. housing market is entering a transition period characterized by slowing home price appreciation, increasing mortgage rates, and declining sales, according to a new in-depth analysis.
Home prices continue to rise on a nationwide basis but at a much slower pace than in 2021 and 2022. According to data from the National Association of Realtors (NAR), the median existing home price in October was $407,100 – up just 2.2% from a year ago. This represents a major comedown from the double-digit price growth seen earlier in the pandemic period.
“Home prices are still rising but buyers aren’t seeing the drastic bidding wars and rapid appreciation that dominated the market over the past two years,” said Lawrence Yun, chief economist at NAR.
At the same time, mortgage rates have surged in 2023 as the Federal Reserve continues raising interest rates aggressively in its fight against inflation. The average 30-year fixed mortgage rate now stands at 7.6%, up from 3.5% in January. This rise in rates has strained affordability for many prospective buyers.
Compounding the issues for buyers are declining levels of homes available for sale, although inventory has improved from early 2023 lows. There were still 1.55 million homes for sale nationally in October, an 8.7% decrease from October 2022 supply levels.
As a result of these trends, home sales activity has slowed considerably. Total existing home sales for October came in at a seasonally adjusted annual rate of 398,907, a 6.7% decrease year-over-year and the lowest sales pace since May 2020.
The housing market faces much uncertainty looking ahead. While strong price appreciation may be in the rearview mirror, fundamentals like job growth, wage gains, and demographic trends continue favoring the housing sector over the long run. But in the short run, factors like mortgage rates, affordability, and inventory availability will dictate conditions.
