The U.S. Housing Market: A Mid-Year Review

Introduction

As we reach the mid-year point of 2023, it’s time to take a close look at the U.S. housing market, mortgages, and the overall real estate landscape. With the 2-year treasury bond going wild and mortgage rates likely to rise, the market is in a state of flux. This article delves into the trends, challenges, and opportunities in the housing market.

Mortgage Rates and Applications

Mortgage rates have been trading within a narrow band between 6.5% and 7% for the past few months. Recently, they broke out and are now solidly above 7.25%. While there’s hope for a slow decrease towards the end of the year, the current rates have implications for home sales and prices.

Mortgage applications are significantly down from a year ago, reflecting affordability issues. Refinance activity has also dropped, and the Mortgage Bankers Association doesn’t expect a rebound in refi numbers until 2024.

Home Sales and Inventory

Existing-home sales fell 2.2% in July to a seasonally adjusted annual rate of 4.07 million. Among the four major U.S. regions, sales grew in the West but faded in the Northeast, Midwest and South. All four regions registered year-over-year sales declines. However, the second half of the year is expected to be better, with buyers adjusting to higher financing costs.

Total housing inventory registered at the end of July was 1.11 million units, up 3.7% from June but down 14.6% from one year ago (1.3 million). Unsold inventory sits at a 3.3-month supply at the current sales pace, up from 3.1 months in June and 3.2 months in July 2022. The lack of inventory has protected home prices from crashing, with a current supply of only two and a half to three months across the country.

Regional Variations and Price Corrections

The housing market correction is highly localized, with most activity in the Midwest and Mid-Atlantic States. While coastal California and parts of Texas are seeing declines, other regions are experiencing price increases.

Existing homeowners are reluctant to put their properties on the market, given the financial disincentive of trading a low mortgage rate for a higher one. This trend is likely to keep inventory low until interest rates decrease.

New Home Sales and Builder Strategies

Sales Numbers

Sales of new single‐family houses in July 2023 were at a seasonally adjusted annual rate of 714,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.4 percent (±12.8 percent)* above the revised June rate of 684,000 and is 31.5 percent (±16.3 percent)
above the July 2022 estimate of 543,000.

Sales Price

The median sales price of new houses sold in July 2023 was $436,700. The average sales price was $513,000.

For Sale Inventory and Months’ Supply

The seasonally‐adjusted estimate of new houses for sale at the end of July was 437,000. This represents a supply of 7.3 months at the current sales rate.

New home sales are doing better, with builders offering concessions and building homes with a smaller footprint to acknowledge current market realities. While new home prices are off 7% from last June, existing home prices are only off 0.5%.

Builders are also being cautious not to build beyond demand, facing challenges such as expensive construction financing, credit tightening, and labor shortages.

Conclusion

The U.S. housing market in 2023 presents a complex picture, with fluctuating mortgage rates, declining applications, localized corrections, and innovative strategies by builders. While challenges persist, there are signs of stabilization and adaptation to the new economic realities.

The market’s localized nature emphasizes the importance of understanding local trends and ignoring national headlines. With cautious optimism, industry stakeholders can navigate the current landscape and make informed decisions.