U.S. State of the Housing Market, June Recap

Asking prices have fallen by 0.9 percent nationwide for the past three weeks in a row, compared to 12 months ago. This marks the biggest decrease on record, according to the realtor.com data, which goes back to July 2017. 

This is a huge change, especially compared to the double-digit asking price gains recorded during the second half of 2022. For comparison’s sake, when looking at the same week in late June 2019, asking prices increased by 6.7 percent. Asking prices are currently down 0.9 percent and in negative territory YOY.

Another issue is the decline in the U.S. housing inventory (the total number of houses for sale). On a YOY basis, housing inventory has actually decreased by 0.3 percent. That may not sound like a lot, but it is drastically different compared to the start of 2023, which had gains in the range of 60 percent. Even by the end of April 2023, 30 percent gains were recorded on a YOY basis. 

This decline is the first decrease on a YOY basis going back to May 2022. An important factor was the absence of a seasonal uptick this past spring (sellers holding onto ultra-low rates), adding to the overall lack of market supply. The realtor.com statistics reveal that housing inventory has been on a downward trend since early February 2023 due to two main reasons: a lack of new supply in the market, and although inventory was soaring this time in 2022, year-to-date (YTD) inventory levels are actually down, with 52 percent fewer homes for sale compared to the same period in 2019.

The realtor.com data shows that the low number of homes for sale can be attributed, in part, to a significant drop in new listings for the week ending June 24th, 2023, which fell 29 percent compared to the same week in 2022. This is the biggest decrease since early April, when inventory levels/new listings fell by 31.5 percent. New listings have been decreasing by double digits for 45 out of the past 48 weeks. 

The realtor.com statistics also present 51 consecutive weeks of YOY new listing declines dating all the way back to July 2022, with fewer new listings compared to the same time frame in 2021. This is causing inventory to remain at historically low levels.

Days on the market also took a hit, according to realtor.com. Last week, it took about 13 days longer to sell a house compared to the same week in 2022, but more importantly, it has been taking longer to sell a house for 47 consecutive weeks and counting. 

Realtor.com reveals that the number of reduced priced listings is also decreasing. This is a substantial difference compared to the first three months of 2023, when the market experienced triple digit gains in the number of price reductions compared to the same time frame in 2022. 

It is now a night and day difference, with YOY price decreases for four consecutive weeks and double-digit reductions for the past two weeks. Last week, the number of price drops shrank by 21.7 percent. 

There are two main reasons contributing to the recent decline in prices over the past four weeks. First, the limited availability of existing houses for sale has resulted in fewer options for home buyers, leading to bidding wars in the summer market. 

Second, price drops were surging at this time during 2022, whereas this year they have been relatively subdued. The share of price drops is actually down YTD, a sizable difference compared to one year ago.

Exacerbating all these conflicts, posted by the Mortgage News Daily as of July 16th, average 30-year mortgage rates have risen to nearly seven percent versus around six percent last year, putting a strain on the entire home buying and selling process.

In addition to the fact that the average 30-year mortgage rates are now 1.1 percentage points higher compared to 12 months ago, the U.S. housing market is facing additional significant challenges to its stability. Factors include elevated home prices that have been increasing nationwide since February 2023, limited inventory, and expanding mortgage rates, which have created record low housing affordability. How the uncertainty brought with a potential economic recession will ultimately affect the housing market remains to be seen.

Housing affordability is now a huge hurdle and key issue for home buyers, especially compared to the past couple of years. According to a July 13th, 2023 Redfin report, “Elevated mortgage rates are cutting into homebuyers’ budgets; a buyer on a $3,000 monthly housing budget has lost $30,000 in purchasing power over the last five months.”

Mortgage rates have more than doubled since late 2021 and prices are up approximately 40 percent from 2020. Home sold prices have risen 10 percent since February. 

Redfin sums up the cumulative effect, saying “To look at the hit on affordability another way, a homebuyer on a $3,000 monthly budget can afford a $450,000 home with today’s average rate. That buyer has lost $30,000 in purchasing power since February, when they could have bought a $480,000 home with that month’s average rate of around six percent. The drop is more extreme when compared to a year ago, when a $3,000 monthly budget would have bought a $510,000 home at a rate of about 5.3 percent.”

So, it is no surprise that the combination of rising rates and higher prices is causing housing affordability to become a huge issue for U.S. home buyers. Moreover, there remains continual doubt regarding when rates, pricing, and inventory will reach a level that provides a comfortable environment for buyers.

It has been difficult to accurately judge homebuyer demand due to the volatility of interest rates so far this year. According to June 28th statistics provided by the Mortgage Bankers Association (MBA), applications for home loans have increased for three straight weeks. The MBA pre-COVID purchase index is on par with the lowest levels since October 2015, as demand is still historically depressed.

Redfin’s July 13th report shows pending home sales fell by 15 percent from 2022, and new listings dropped 27 percent. This combination of low demand meeting an even smaller supply generates the illusion of a competitive housing market environment, which is resulting in bidding wars that are artificially driving up prices.

But the essential concern is supply and how a substantial lack of inventory is affecting U.S. home sales. In a June 29th update, the National Association of Realtors (NAR) reported that pending sales in May fell by 2.7 percent from April 2023, and decreased by 22 percent from May 2022. That being said, according to a June 27th U.S. Census Bureau release, new home construction sales rose in May 2023 by 20 percent. This statistic reflects the advantage builders are gaining due to rate buydowns and the low supply of existing houses.

Obviously, the U.S. housing market is highly rate-dependent, and the fitness of every other aspect will revolve around how inflation affects the Fed’s future decisions to further raise interest rates. As the data portrays, many sellers and buyers have exited the market because of higher interest rates, leading to diminished home listings. 

While acknowledging the significance of interest rates, pricing, and inventory, it is also very important to consider that the future trajectory and overall health of the U.S. housing market will become contingent on various economic factors, including the unemployment rate and the risk of a possible recession. However, if mortgage rates climb, demand will slow, and inventory will increase. If mortgage rates lessen, home buyer demand will rise, and inventory will shrink, indicating it will take some time for the U.S. housing market to escape from the current Catch-22. Hang on, it is going to be a thrilling ride.

In our July recap, Haven will take a further look at the numbers: how the current U.S. housing market is reacting to prevailing economic factors influencing real estate.