November 2023 Housing Market Report: A Complex Landscape of Decline, Resilience, and Emerging Trends
The following article includes views from Reports on Housing by Steven Thomas and other economic experts. It is not a reflection of the opinions, views, or predictions of Nuvision and its representatives.
As we approach the end of 2023, the U.S. housing market presents a complex and multifaceted landscape. From a seasonal downshift influenced by holiday distractions to predictions of declining home prices and a shifting demographic of buyers, various forces are shaping the real estate sector in unique ways.
Seasonal Shift and Market Slowdown
Real estate expert Steven Thomas says the housing market typically experiences a holiday downshift post-Halloween. This year is no exception, with the arrival of shorter days, holiday festivities, and family gatherings leading many to pause their real estate activities. This seasonal trend is throughout the U.S., where both inventory and demand are plunging, /
“Starbucks cups, holiday romantic movies on Netflix, and neighbors’ early installation of Christmas lights are all further indications that the festivities and distractions of the season are about to hit the housing market,” said Thomas.
Predictions of Price Declines
Moody's chief economist Mark Zandi and Redfin CEO Glenn Kelman have indicated potential declines in U.S. home prices. With mortgage rates reaching two-decade highs and sales of previously owned homes plummeting to the lowest in 13 years, the market is under significant pressure. Zandi anticipates a market recovery not before 2025 or 2026, while Kelman expects price drops next year due to increased listings and price cuts by sellers.
"The only way out of the box, the only way to get sales back up is mortgage rates have to come down, incomes have to continue to improve, we have to avoid a recession, and I suspect we'll have to see some house price declines at some point here," Moody's chief economist, Mark Zandi, told Yahoo Finance this week.
The "Lock-In Effect"
A major factor contributing to the market's challenges is the "lock-in effect" described by Fannie Mae analysts. With mortgage rates hovering near 8%, many homeowners are reluctant to sell, preferring to retain their lower-rate mortgages. This has led to a depleted supply of homes for buyers, pushing up prices despite the overall market slowdown.
"Housing has been and continues to be under serious affordability pressure, resulting in recessionary-level home sales activity," Doug Duncan, Fannie Mae's chief economist, said in a statement. "While many current owners with low mortgage rates will likely continue to be discouraged from listing their homes, we expect mortgage rates to trend modestly downward in 2024, which should help kickstart a gradual recovery in home sales into 2025."
Boomers Dominating the Market
The demographic landscape of the housing market is also changing. Data from the National Association of Realtors reveals that Baby Boomers are increasingly dominating the market. This shift has been gradual but was confirmed recently, with first-time buyers comprising only 32% of home sales, a significant decrease from past years. These older buyers, often repeat buyers, are more financially stable, making them more competitive in the current market.
Millennials and Gen Z "Hacking" the Housing Market
Despite the challenges, younger generations are finding creative ways to navigate the market. "House hacking," the practice of renting out part of one’s residence, has become an increasingly popular strategy among millennials and Gen Z. This approach, as highlighted in a Zillow report, has become essential for these generations in coping with high prices and interest rates.
The Outlook for 2024 and Beyond
Looking ahead, the housing market's recovery is expected to be gradual. Fannie Mae predicts that sales will "bottom out" in early 2024, with a rebound following in 2025. Similarly, Morgan Stanley's chief U.S. economist Ellen Zentner forecasts an improvement in home affordability and an increase in supply, leading to stronger homebuilding activity next year.
While challenges such as high mortgage rates and low inventory persist, emerging trends and forecasts suggest potential pathways to recovery in the coming years.
For more information on where the economy is heading, make sure you join us for our 2024 Economic Outlook Forecast on December 6th.
