Forbes , Aug.2023, The national average 30-year fixed mortgage rate crossed the 7% mark in the third week of August, rising to 7.09% the week ending August 17.
The median existing-home sales price also broke through $400,000 for the first time in 2023, hitting $410,200—the second-highest price ever recorded—and is now poised to surpass the June 2022 all-time high of $413,800, according to the National Association of Realtors (NAR).
Meanwhile, existing monthly home sales dropped 3.3%, with all four major U.S. regions posting year-over-year sales declines.
Despite high mortgage rates, the market remains as competitive as ever thanks to strong demand coupled with tight inventory supply, due, in part, to those who purchased homes in recent years at record-low interest rates staying put. These and other factors form a perfect affordability crisis storm that continues to sideline many aspiring homeowners.
Housing Market Forecast for August 2023
Housing market activity remains weak overall thanks to high mortgage rates, elevated home prices and constrained housing inventory—a trifecta of headwinds perpetuating the housing affordability crisis. At the same time, high inflation and more interest rate hikes still hang in the air.
Mortgage rates rose the first week of July, jumping to 6.96% by mid-month as Federal Reserve policymakers voted to raise the federal funds rate by a widely anticipated 25 basis points at the July meeting. A basis point is one-hundredth of one percentage point. The federal funds rate is the rate financial institutions lend to each other overnight.
A Fed rate hike indirectly impacts long-term home loans, such as 30-year, fixed-rate mortgages. The federal funds rate hovered near zero in March 2022 when the Fed began raising rates. The rate range is now 5.25% to 5.5%.
The Fed will likely not stop there. In response to reporters at the post-meeting press conference, Federal Reserve Chair Jerome Powell stated the economy has yet to feel the full impact of the Fed’s actions and that the committee’s efforts to tame inflation to its 2% target still had “a long way to go,”
The Fed revealed new terminal rate projections in June that suggest the rate will reach 5.6% by the end of 2023, implying at least one more rate increase in 2023. Consequently, many experts believe mortgage rates will remain above 6% for the remainder of this year.
Some Experts Foresee Sluggish Housing Market Recovery
Although weekly averages for 30-year mortgage rates are down from their fall 2022 peak, if the ongoing oscillation between 6.5% and 7% continues—or rates break through 7% again—it’s hard to imagine housing market conditions significantly improving anytime soon, especially if the Fed continues with rate hikes.
Mortgage originations amounted to only $344 billion in the first quarter of 2023, their lowest total since the second quarter of 2014, according to a Freddie Mac report. Housing experts expect originations will remain muted through the rest of 2023. In addition, existing-home sales were down a whopping 18.9% from the year before, per NAR.
“I expect the number of homes for sale to decline this year and continue to be a damper on home sales,” said Danielle Hale, chief economist at Realtor.com, in an emailed statement. “Limited inventory is also keeping prices high even though housing affordability has deteriorated significantly in the past three years.”
On the other hand, some experts are choosing to flip the script and focus on the signs indicating that the market is entering a new phase.
“The recovery has not taken place, but the housing recession is over,” said Lawrence Yun, chief economist at NAR.
Despite this optimistic take, Yun acknowledges that home prices will remain high due to demand outpacing housing supply and that more inventory will prove critical to providing greater access and affordability for aspiring home buyers.
Housing Inventory Outlook for August 2023
Low housing inventory has been a challenge since the 2008 housing crash when the construction of new homes plummeted. It still hasn’t fully recovered—and won’t in 2023.
Housing supply remains at near historic lows—especially entry-level supply—consequently propping up demand and sustaining higher home prices.
Even so, new single-family homes have been coming to the rescue—at least to some extent—enticing eager shoppers frustrated by the limited resale inventory. Moreover, the price gap between the median existing-home sales price and new home sales price has closed markedly in recent months, another incentive luring home seekers.
Nonetheless, new home sales took a small hit between May and June as mortgage rates sailed past the 6.5% mark. Sales dipped 2.5% to 697,000 new single-family homes selling in June compared to 715,000 in May. The median sales price for a new home was $415,400, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD).
“With low existing home inventory, new home inventory is becoming competitive, and new homes are now competitive on price,” said Robert Frick, corporate economist with Navy Federal Credit Union, in an emailed statement. “The premium for a median-priced new house versus an existing house is now only $5,000.
In October 2022, the median sales price for a new home was $496,800, while the median existing-home sales price was $378,800—a difference of $118,000. This gap has since narrowed by roughly 96%.
Inventory of unsold, existing homes was unchanged between May and June, shackling existing inventory to a paltry 3.1-month supply at the current sales pace. Existing inventory has remained stalled at record lows for months. Many experts say a balanced housing market has four to six months of inventory.
“Inventory is approximately 46% below the historical average dating back to 1999,” says Jack Macdowell, chief investment officer and co-founder at Palisades Group. “We think that it is highly unlikely that the inventory problem will be resolved in 2023,” Macdowell says.
The country ultimately needs 4.3 million more homes, according to a Zillow analysis.
“There are simply not enough homes for millions of people,” said Orphe Divounguy, senior economist at Zillow, in a press release. “Unless we address the shortage of smaller, more affordable, starter-type homes, we risk leaving families without a seat—and it will only get worse over time.”
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