Home Sales to Bottom Out in 2023, Rebound 2024

A reflection and look forward on the real estate market reveals that existing home sales are still well below our pre-Covid levels. Any change will be months in coming.

Lawrence Yun, Chief Economist for the National Association of RealtorsⓇ (NAR), highlighted how our year-to-date today home sales are down 23% during the August 2023 NAR Leadership Summit. His presentation highlighted how constrained inventory is holding back gains.

Home prices keep rising

Part of why home sales are down so dramatically correlates to the national median prices. While these are down from their 2022 peak, median sale prices are back on the rise in 2023. January 2023 was around $375,000 while existing home sale prices reached $406,000 for July 2023. 

This home price growth was felt most acutely across the Atlantic and Midwestern states in the first quarter of 2023. In the contiguous United States, Delaware, Nebraska, and West Virginia had the most annualized change from Q4 2022 to Q1 2023. Meanwhile, many states out West reported declines in their pricing, led by Nevada.

Yun compared home prices from Q1 2020 before COVID shut down economic and sales activity to where we stand now to illustrate better how much home sales have grown. Consider how home price appreciation averaged 4.53% year-over-year from 1993 to 2023. It’s just been three years, but the double-digit price gains in some of these competitive markets far exceed the 13.5% you’d expect. 

The top states for home price growth were:

• Florida: 57.6%
• Idaho: 54.5%
• Tennessee: 52.5%
• Arizona: 51.9%
• North Carolina 50.9% 

New construction is coming back 

But it’s not all bad news for real estate markets. New construction is back to pre-Covid levels, showing that the supply change and labor challenges brought on by the pandemic are resolving. It also indicates how hard it is to buy existing real estate. Some prospective home buyers feel they have no choice but to buy a new construction home.

The figures show the available inventory of existing real estate is low while the inventory of new homes is high.

Homeownership costs will stay elevated 

What can we expect in the future? Yun points out that while inflation woes are finally starting to ease, with rates down to 3% in June, it’s still below the 2% threshold the US Federal Reserve prefers. That means we can still see more fiscal policy management through potential base rate increases. These impact the 10-year Treasury Yield and trickle over to the mortgage industry. 

Carrying a mortgage is now more expensive than ever. The monthly mortgage payment average is now above $2,000. The figure is notably more than it was a year ago, especially when you look at the graphs provided by Yun and the NAR illustrating how rapidly the cost of owning a home jumped compared to past years.

Yun anticipates that mortgage rates will stabilize closer to 6% by early spring 2024. This change would provide incremental relief to homebuyers but keep the monthly mortgage payment higher.

Home sales activity will possibly hit bottom this year 

He also predicted that new and existing home sales will reach a cyclical low this year. Yun projected market inventory to increase starting in 2024. More homes would provide some relief for homebuyers, as more competition brings markets closer to balance and helps stabilize home prices. It may also encourage homeowners waiting to sell to list their homes, as it will be easier for them to find their next home.

As for where things stand, the existing home median sales price was up 1.9% YOY to $406,700 in July 2023. The nation had a 3.3-month supply of inventory, a small bump of 0.1 months. If Yun is right, our low supply of inventory will persist for a little longer, but bear closer watching in the coming months.

Presented by NAR Chief Economist Lawrence Yun, “Real Estate Market Outlook August 2023,” National Association of REALTORS. 2023 NAR Leadership Summit, https://www.nar.realtor/research-and-statistics/research-presentations