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What's Going On With the Housing Market?

Updated: Jan 26, 2023

Large, new construction home for sale with green lawn and blue skies in background

Home buyers and sellers are trying to make sense of a housing market downturn that is full of contradictions: demand has seized up due to higher interest rates, but supply is still low, and prices are sliding but not plummeting - remaining higher than pre-pandemic levels. Market experts looking at the data can't agree on what comes next.

What's Been Going On?

  • U.S. existing-home sales fell for a 10th straight month in November 2022, the longest streak of declines on record. The steepest mortgage rates in two decades and high home prices have kept many buyers on the sidelines. Case in point: monthly mortgage payments surged 45% year-over-year in the summer of 2022.

  • It is typical for rising interest rates to cool the housing market, but the speed of last year’s mortgage-rate increase created something of a whiplash effect among buyers and sellers.

  • Home prices soared 40-45% between January 2020 and June 2022, according to the S&P CoreLogic Case-Shiller National Home Price Index.

  • From its peak in February 2022, the seasonally adjusted average MLS price has dropped by 15.6%.

What does 2023 Hold In Store?

  • A January 2023 report by Redfin found that pending house sales in the US, however, rose 3% in December 2022, the first increase since October 2021. After a tumultuous year, housing demand may be rising, or December could prove to be an anomaly. The next few months will determine if interest is returning.

  • Most market analysts feel the housing-market slowdown will persist in 2023 because home-buying affordability is near its lowest level in decades. In fact, affordability is at its worst since 1985.

  • A new report by research firm Capital Economics has warned that sales will slump and housing prices will fall by 8% this year, all while lending standards remain tight and affordability is poised to worsen.

  • Melissa Dorman, a broker with Living Room Realty, believes a 9% interest rate in 2023 isn't out of the question. For a generation of homebuyers who hasn't experienced what some older homeowners did when rates reached 11-15% in the 1980s and 1990s, 9% seems outrageous, particularly only a year or so after they were at historic lows.

  • If inflation continues at its current 7.5% level (down slightly from an 8.25 high in December 2022), or grows higher, some experts believe we could see a housing "crash" much like what we saw in 2008 after the mortgage crisis.

It's Not All Doom & Gloom

For Home Buyers

According to Nadia Evangelou, a senior economist and director of Real Estate Research for the National Association of Realtors, there are three possible mortgage rate scenarios for 2023:

  • Inflation remains high, forcing the Fed to raise interest rates repeatedly. Mortgage rates, therefore, will keep climbing, possibly near 8.5-9%.

  • The consumer price index responds more to the Fed's rate hikes and there is a gradual deceleration of inflation, causing mortgage rates to stabilize near 7-7.5%.

  • The Fed raises rates repeatedly to curb inflation and the economy falls into a recession. Mortgage rates would likely drop to 5% then.

For Home Sellers

Forbes predicts low housing inventory will help sustain higher-than-average home prices, but they will still fall off pandemic highs (around -23%). Housing inventory has been a challenge since the 2008 housing crash when the construction of new homes plummeted, and it remains near historic lows. The low number of available homes will inflate pricing.

Sellers, many of whom currently have ultra-low mortgage rates, will be forced to accept lower prices over the next year (-8%) with a 2.5% price growth by the end of 2024.

How To Make The Best Of The Market

Lending experts feel that if homebuyers can make a larger down payment than the usual 20%, this will offset some of the high cost/high rate issues until rates can be refinanced.

Home sellers can benefit from the scarcity of inventory, and while perhaps not enjoy the bidding war frenzy of the pandemic, will be able to command fair market pricing for their homes.


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Sources: Yahoo! Finance, RocketMortgage,, Forbes, WSJ, MarketWatch




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