The State Of The Housing Market In 2023

Originally written: August 2023

Last updated: August 2023

Now that we’re into the back half of the year, we thought it would be a good time to reassess the state of the housing market in 2023 and think about where we might be headed before we turn the page to 2024. We’ll go over key factors like interest rates, prices and inventory, and time spent on the market before getting into what it means for you as a buyer.

If you were to ask most market observers, the general consensus would undoubtably be that the real estate market in 2023 has been and will continue to be a challenging one to say the least. There are several reasons for this, which we can delve into a bit below.

Interest Rates

The housing market has been crazy the past several years, with many people giving all-cash offers or going well over asking price to get into a new home. Still, most people don’t have those kinds of assets at their disposal. Because most people are buying with a mortgage, interest rates do matter.

Federal Reserve officials, who guide our economy by controlling inflation and trying to avoid a recession, are both pleased with the progress and talking tough on inflation, depending on the headline you read. If we take them at their word, we can expect at least one more hike of the federal funds rate this year. Beyond that, it’s crystal ball territory, but there is some talk of rates staying higher for longer.

In terms of where interest rates are headed for the rest of 2023, there’s some variance among analysts. The National Association of REALTORS^® (NAR) sees mortgage rates for the 30-year fixed being in the mid-6% range for the rest of the year.

Fannie Mae sees rates ending the year around 6.6%. Freddie Mac says only that they expect rates to stay above 6%. The National Association of Home Builders (NAHB) predicts a 6.69% interest rate to finish out the year.

For what it’s worth, according to Freddie Mac, the average interest rate on a 30-year fixed mortgage as of August 17, 2023, was 7.09%.

Real Estate Prices

When it comes to real estate prices, what you’ll find is that they haven’t gone up much in the last year, at least when looking at a national average. There are two corollaries to this.

The first thing to know is that home prices went up very quickly when the housing market started moving again after the initial shutdowns caused by the pandemic in 2020. So home prices in many markets are likely elevated compared to where they were a few years ago regardless of what the current year-over-year data says. However, there is some good news:

Prices aren’t going up at nearly the pace they were a year ago. Our friends at Rocket Homes^® have significant coverage across the multiple listing service (MLS) in all 50 states.

Nationwide, home prices were only up 3.4% year-over-year as of July 2023.¹ This is quite a disagreement with the Case-Shiller index data, which most recently showed a year-to-year decrease of 1.7%, but that’s a 3-month rolling average going back to May 2023, so the data is a little stale. It makes sense that the housing market nationwide would pick up when school was out, but the trend for buyers could be better at first glance.

However, it’s important to keep in mind that each real estate market is different. We’ll cover this in more detail a couple of sections down, but it’s very important to understand trends in your area.

For the rest of the year, Fannie Mae predicts 3.5% price increases inching up to 3.9% year-to-year increases in the fourth quarter. Freddie Mac mildly disagrees, saying prices will rise 0.8% over the next 12 months in its latest forecast.

Home Inventory

Total available housing inventory is fairly weak right now. It’s better in the market for new homes than existing ones, but most people buy existing homes because traditionally they’re cheaper than new construction. With mortgage rates where they are, the picture is unlikely to get better in the short term because people won’t want to sell and give up low mortgage rates unless they must.

Fannie Mae predicts the housing starts in the new construction market will be 1.408 million for the rest of 2023, with 896,000 of those being single-family construction and 512,000 multifamily starts (5 units or more).

The NAHB predicts 1.394 million starts, broken out by 896,000 single-family starts and 499,000 multifamily units.

Existing Homes

The best inventory data we have for existing homes comes from NAR. In its latest data, the association shows that across the country, inventory was at 3.1 months. For context, if inventory is at 6 months based on the current rate of sales, that’s traditionally considered to be a market in balance.

New Homes

The existing inventory of new homes on the market stands at 7.4 months as of June. This has come off even higher numbers not so long ago, so the inventory situation is much better. But for the reasons mentioned above, existing homes are what needs to drive inventory more than new homes.

Time On Market

How long properties are staying on the market is another key metric to understand. The longer a property has been on the market, the more negotiating leverage buyers likely have. One thing that’s important to understand is the average in your local market. This is something you can get from the trend reports done by our friends at Rocket Homes.

Nationwide, the average number of days on market for a listing was 38 in July based on Rocket Homes^SM data. That’s trending down over the last several months, but July is a peak home buying month. It’s still an improvement compared to last year at this time when the average listing was spending just 28 days on the market.

The Impact Of The Federal Reserve

We touched on this somewhat earlier because it’s impossible to separate the impact of the Federal Reserve from any discussion on interest rates. However, it’s worth taking a moment to go deeper on why that’s the case and what future movements might mean for the market.

The Federal Reserve has two big tools for impacting mortgage rates. The main one is its control of the federal funds rate target range. The federal funds rate is the rate at which banks borrow from each other overnight. If that rate goes up or down, the movements tend to be passed on to consumers through higher or lower interest rates.

Because of a concern about inflation, the Federal Reserve has been steadily raising the federal funds rate. The reasoning behind this is if it gets more expensive to borrow money, people will spend less, driving prices down over time.

The impact on mortgage rates isn’t as immediate as it would be for the rates on credit cards because mortgage rates are operating on a much longer time horizon. However, the two still tend to move in the same direction.

The other thing that’s impacting mortgage rates is the Federal Reserve selling off the mortgage-backed securities (MBS) it bought to stimulate the economy during the pandemic. This had the effect of pushing rates down as well as encouraging spending, but it was accompanied by a rapid rise in home prices.

The Federal Reserve began selling bonds back into the market a while ago. Along with the changes to the federal funds rate, this also has the impact of pushing rates up.

However, it hasn’t come with the drop in prices that might otherwise be expected if housing supply was remotely normal. There’s just not enough inventory in the market across much of the nation to justify price drops.

While the MBS sales do have the effect of a tendency toward higher rates, the level of sales is scheduled so it’s more of a drip that the market can control for. Changes to the federal funds rate are much less predictable.

When it comes down to whether it’s a buyer’s or seller’s market, it’s all about location. Although many areas of the country have seen the prices of 2020 keep hanging on, some markets where prices rose to stratospheric heights have seen them come back to Earth.

For example, home prices in Seattle and Phoenix are down 11.25% and 7.62%, respectively since last May, according to the Case-Shiller home price index for the cities.

Buying A Home In 2023

If you’re looking at buying a home in 2023, there are several tips you should take into consideration:

• Get preapproved: A Verified Approval from Rocket Mortgage^® involves a soft pull of your credit.² We also collect documentation such as W-2s, 1099s, tax returns and pay stubs to verify your income and assets. Sellers and their real estate agents hope for this type of documentation because it means you’re qualified to offer the agreed-upon purchase price.
• Make the offer carefully: When you make an offer, it goes beyond the purchase price. If you’re working with a real estate agent, they’ll be able to advise you on how much earnest money is standard in exchange for the seller taking the property off the market. Additionally, they can tell you the contingencies you should leave in for your protection or take out to reassure a seller. It’s also important to consider timing clauses.
• Get an inspection: Whether you have an inspection contingency in your purchase agreement or not, you should really get a home inspection. You want to know what you’re walking into. Second, if you do have a contingency and there’s something seriously wrong with the home, you can get them to fix it, ask them to lower the price so you can fix it or walk away.
• Lock your rate: Because rates are running high and the Federal Reserve is expected to increase the target for the federal funds rate one more time this year, it’s not a bad idea to lock your rate as soon as you can. Although the direction of the federal funds rate isn’t directly tied to mortgage rates, the two tend to move in the same direction.
• Consider closing costs: Closing costs cover things like appraisals, title insurance and recording fees. This is anywhere between 3% – 6% of the purchase price typically. There are ways to lower those costs like taking a lender credit in exchange for a slightly higher rate or negotiating seller concessions, but make sure you’re taking these into account.

Selling A Home In 2023

If you’re on the opposite end of the transaction and selling a home in 2023, we’ve got some tips for you as well.

• Fix what you can: When you put your home on the market, you want it to be in the best shape possible. Have a dollar figure in mind for how much you’re willing to spend to fix the property up before actually making the listing. You will want to put top priority on any safety issues because these fixes are necessary for the move-in ready condition needed to pass an appraisal.
• First impression matters: You’ll want to stage the property so that prospective buyers walking through the home can easily see themselves living in it. Photos are also important. Prepare your house for its close-up.
• Price thoughtfully: If you’re working with the real estate agent, they can help you do a comparative market analysis which will help with this. However, you want to make your asking price is as close to the fair market value of the property as possible. This gives you a better chance of attracting multiple offers and potentially creating a bidding war.

Before we wrap up, let’s touch on some of the other questions you may have.

Will home prices drop in 2023?

Stipulating that no one has a crystal ball, it’s not really helpful to answer this question on a national basis because real estate is entirely based on your local market. On a national basis, some metrics are showing that home price growth has slowed and may even be reversing. Still, it doesn’t matter what Case-Shiller says if it doesn’t match what’s happening in your backyard.

Will interest rates drop in 2023?

This one is kind of tricky because it’s all relative. Interest rates move up and down on a daily basis, sometimes multiple times a day. If we’re talking about a move in interest rates based on something the Federal Reserve does, a substantial drop is unlikely because Fed projections have officials raising the target rate one more time this year.

How are home prices impacted by interest rates?

If we were in a market with relatively balanced levels of inventory – about 6 months of supply relative to the pace of sales – home prices would likely be lower. As of June 2023, the supply of existing homes is barely over half that. This means people who are looking to buy now are paying elevated prices regardless of interest rates. With more inventory, prices would be expected to come down as rates rise. But it’s more about supply and demand.

Is it currently a buyer’s or seller’s market?

Nationwide, the market would seem to favor sellers right now. That said, there are areas where prices are falling and there’s more inventory available. A national trend isn’t nearly as important as what’s happening where you’re looking to buy. We encourage you to stay on top of trends in your area. If you’re working with a real estate agent, they’ll also be able to advise you.

The housing market right now seems to favor sellers when we look across the country. Low inventory is supporting higher sales prices. Of course, if you try to sell right now, you will have to find another place to live, running into the same inventory limitations. Interest rates are also higher, which is no doubt keeping some from listing their home.

There are some positive signs, however. Time on market is up compared to the same time a year ago. Additionally, prices are falling in some of the markets that were hottest in 2022, so eventually the market should revert to some form of normalcy. All real estate is local, so don’t take the nationwide trend for granted. Keep an eye on what’s happening in your area.

If you’re ready to get started on your home buying journey, we’re happy to help! You can apply online today!

¹ Rocket Homes^® is a registered trademark licensed to Rocket Homes Real Estate LLC. The Rocket Homes^SM Logo is a service mark licensed to Rocket Homes Real Estate LLC. Rocket Homes Real Estate LLC fully supports the principles of the Fair Housing Act. For Rocket Homes Real Estate LLC license numbers, visit  RocketHomes.com/license-numbers. California DRE #01804478. Hawaii License # RB-23371. TREC: Information about brokerage services, Consumer protection notice.

₂ Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, assets and debt. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage’s control, including, but not limited to satisfactory insurance, appraisal and title report/search, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close due to a Rocket Mortgage error, you will receive the $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional conditions or exclusions may apply.