A Housing Cold Front? A look at the 2023 Market Trends and Forecasts

Aug 15, 2023, 15:05 PM by Nuvision Credit Union 

Housing ReportThe 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. 

Summer 2023 was a season of paradoxes in the housing market. A period marked by low inventory, homeowners' reluctance to sell, suppressed demand, and a low number of closed sales. Despite rising home values and brisk sales, the landscape reflects scarcity and a lack of activity.

Low Inventory and Unwilling Sellers

The summer began with signs of a housing market stalled by hesitancy. Homeowners seemed reluctant to part with their properties, resulting in low inventory throughout the country. This scarcity and rising values created a situation where most homes sold quickly, yet few were entering the market.

Housing Market Expert Steven Thomas explained what he has been seeing in the overall housing market. He told us that Southern California's weather in May and June was a fitting metaphor for the housing market.

"Southern California was subject to some of the coldest daytime temperatures in the last 40 years, far below their norm."… "The housing market has experienced a similar cold front where it seems shrouded in a thick fog that will not clear. The higher mortgage rate environment has impacted many real estate statistics and resulted in a very cool summer. The active inventory, demand, and closed sales pale compared to when housing felt "normal" before COVID"

Impact of Higher Mortgage Rates

The cooling in the housing market is also attributed to higher mortgages. Active inventory, demand, and closed sales have been pale compared to the pre-COVID "normal" housing market. While one might think the most significant impact would be on demand, the supply of available homes suffered the most.

The Economic Landscape

Much of what is going on can be attributed to the overall economy. In fact, according to Moody's Analytics, the typical American household spent $709 more in July 2023 than two years ago for the same goods and services. With prices soaring and real earnings stuck at 2019 levels, the disparity between income and cost of living becomes more apparent.

The median sales price of a home in the US now constitutes 560% of the median household income, compared to 360% in 2008. This marks the most unaffordable housing market in history, emphasizing the growing gap between earnings and home ownership.

According to analysts, the government's fiscal policy and financial health add even more complexity to the housing marketing equation:

  • Borrowing $5.2 billion per day for the next 10 years
  • On track to pay over $1 trillion in interest in one year
  • Tax revenue down approximately 8% over the last 12 months
  • Added $8 trillion to the debt balance in three years
  • Spending 40% more in 2023 than in 2019
  • Debt-to-GDP ratio expected to rise to 225% by 2050

These statistics illustrate the economic challenges facing the country and the potential ripple effects they can have on housing and overall economic stability.

A Glimmer of Hope: Future Prospects and Predictions

Despite the seemingly bleak picture, some positive notes are on the horizon. According to Zillow, the rent components of the consumer price index (CPI) are expected to move lower, as rent increases have already fallen more than reflected in the CPI calculation. The Zillow Observed Rent Index (ZORI) annual growth has dropped to 3.6% from a peak of 16%.

With housing inflation in the CPI expected to continue to fall, there's potential for economic growth, and a decline in core inflation is a step in the right direction. This situation may keep a lid on the recent increase in yields, followed by mortgage rates, and offer potential savings for many prospective home buyers.

Various financial institutions and economists have projected shifts in mortgage rates, emphasizing factors that could improve housing affordability, such as increasing incomes, decreasing home prices, and lowering mortgage rates. Among these factors, mortgage rates could exert the most substantial influence in the short term, as home prices tend to be sticky, and income growth has limitations.

Where are mortgage rates heading from here? Here are some projections from industry experts:

As the economic landscape continues to evolve, homebuyers and sellers must stay informed; that's why Nuvision is dedicated to bringing you the latest news and the top industry experts.

Join Nuvision Credit Union CEO Roger Ballard and economic expert Dr. Christopher Thornberg on September 7th for an in-depth presentations and open dialouge on today's economic landscape. Known for predicting the 2007 subprime mortgage crash, Dr. Thornberg's insights are not to be missed. Join us at 5 PM PST / 4 PM AKST and get your questions answered. Click here for more information.