Despite a 5.5 million increase in the number of potential buyers who would qualify for a mortgage compared to a year ago, pending home sales in January were roughly flat month over month and year over year, the National Association of REALTORS® said, citing its Pending Home Sales Report.
Sales were down 0.8% month over month and 0.4% year over year. The increase in newly qualifying borrowers comes from the slow but steady decrease in mortgage rates over the last year, which are approaching 6%, NAR Chief Economist Lawrence Yun said.
“Most newly qualifying households do not act immediately, but based on past experience, about 10% could enter the market — potentially adding roughly 550,000 new homebuyers this year compared with last year,” Yun said. “Unless housing supply increases, these additional potential buyers becoming active in the market could simply push up home prices. This will put increasing pressure on affordability, which is why it is critical to increase supply by building more homes.”
By region, month-over-month pending home sales rose in the Midwest and West and declined in the Northeast and South. Year-over-year pending home sales rose in the South and West and declined in the Northeast and Midwest.
While the topline national numbers were down slightly, several metro areas saw healthy annual gains, including Phoenix (up 11.8%), Boston (10.7%) and Miami (6.8%).
Existing-home sales in the U.S. jumped 5.1% month-over-month to a seasonally adjusted annual rate of 4.35 million in December, surpassing the consensus expectation of 4.23 million and representing the highest rate in almost three years, the National Association of REALTORS® said. Year over year, sales rose 1.4%.
“2025 was another tough year for homebuyers, marked by record-high home prices and historically low home sales,” said NAR Chief Economist Lawrence Yun. “However, in the fourth quarter, conditions began improving, with lower mortgage rates and slower home price growth. December home sales, after adjusting for seasonal factors, were the strongest in nearly three years. The gains were broad-based, with all four major regions improving from the prior month.”
Housing inventory fell 18.1% from November to 1.18 million units, which represents a 3.5% gain from December 2025. Given the rate of sales, the nation had a 3.3-month supply of unsold homes, down from 4.2 months in November but up from 2.2 months a year earlier.
“Inventory levels remain tight,” Yun added. “With fewer sellers feeling eager to move, homeowners are taking their time deciding when to list or delist their homes. Similar to past years, more inventory is expected to come to market beginning in February.”
The median existing-home price rose 0.4% year over year to $405,400, marking the 30th straight month of annual increases. Meanwhile, the average mortgage rate was 6.19% in December, down from 6.24% the previous month and 6.72% a year ago.
Regionally, sales were up month-over-month across the board. Year-over-year, sales rose in the South, were flat in the Midwest and West, and declined in the Northeast.
Anne Hartnett Hi, I’m Anne Hartnett with Agent Publishing. Today we’re taking a closer look at what the 2026 housing market may actually look like based on the latest forecasts coming from across the industry. I’m joined today by Matthew Gardner, chief economist at Gardner Economics, to break down where those predictions align, where they differ, and what they really mean to real estate professionals heading into 2026. Thanks for joining me today, Matthew.
Matthew Gardner You are welcome, and good to see you again.
Hartnett Almost every forecast agrees more homes will sell in 2026. The disagreement isn’t if — it’s how fast. What’s driving that range of optimism and what ultimately determines how quickly transaction volumes will actually return?
Gardner That’s a great question, and to be honest with you, it couldn’t really get any worse. The last couple of years, sales have been really remarkably, remarkably low. So why are we going to see a change in that? Well, there’s a couple of reasons, one of which is I expect to see inventory levels rise a bit more. Therefore, there’s going to be more choice in the marketplace. That obviously is a good thing. But more importantly, I think, is that I expect that home sellers, they’re going to start becoming a little bit more, shall we say, realistic when it comes to the value of their homes. So if you start seeing some lower asking prices, well, naturally you can have home buyers or potential buyers watching, and I think we’re going to see increased sales because of that. But I also see there’s one other driver that no one’s really talking about. And that is going to come in the form of who I call “fence sitters.” Now, these are would-be buyers, and they’ve been waiting on the sidelines. And quite frankly, they’ve been waiting for one thing to happen, and that’s a housing market that’s going to collapse, and therefore they could pick up a home remarkably cheaply. Well, I think they’re now saying, well, maybe they know that’s not going to happen and the market’s not going to implode. And because of that I think they’re going to start getting more active in the marketplace as well. So when you combine greater inventory but more importantly greater demand, that means I expect to see a decent but not huge jump in the number of sales in 2026 over 2025 levels.
Hartnett The industry agrees prices will hold, not surge, signaling balance, not distress. Is 2026 the year we finally stop talking about price acceleration and start talking about price normalization?
Gardner I’m not sure that 2026 will be best described as balanced. Because I think there’s going to be plenty of markets where affordability is still going to be a very significant issue. And there are also others where we haven’t seen price drops, quite frankly, bottom out. That said, I certainly see prices being able to rise nationally a little bit more. Yes, it’ll be somewhat modest growth, and the reasons for that are going to be somewhat similar for the reasons that I expect sales to increase. Greater confidence in the marketplace will be one. We’re also seeing modestly lower borrowing costs and improving affordability in certain markets, but mainly it’ll be improving affordability because asking prices are quite likely to pull back a little bit further. And price growth also, it will go up a bit nationally, but it’s going to vary fairly significantly by region. And I expect that home prices in the Midwest, which is classically more affordable than the rest of the country, I think they can raise quite nicely, but they’ll be very modest gains in the northeast and in the south, while out west, where prices actually declined in 2025, I see them turning modestly positive in 2026. So the bottom line here, as far as I see it, is that incomes will be rising, likely a little bit faster than home prices. That’s good for affordability, but I think it’s going to take several years of this trend of very low price growth and far higher wage growth. Before we can say that the market is even close to being normal. I just don’t see that happening for quite some time. And because of that, I think it’s still going to be a fairly hard environment for all those would-be first-time buyers out there.
Hartnett Most organizations are predicting rates in the low- to mid-6% range. Matthew, you predict the lowest rate of 5.9% by Q4 2026. What’s driving that outlook and what would need to happen for rates to move meaningfully lower or higher?
Gardner Well, the primary reason that I think the rates can drop from where they are today is that although I don’t see bond yields moving much, and as we all know, mortgage rates are based on the yield on ten-year treasuries. But what we have seen is the spread between ten-year paper and mortgage rates tighten and really kind of start heading back closer to the historic average the spread was between them — that 1.8%, 1.9%. So what that means is we could actually see bond yields not move very much at all. But mortgage rates can come down if that spread continues to narrow. So yes, I think that we could likely — not guaranteed — possibly getting just marginally below 6% by the end of 2026. Now, what it would take to move significantly below that? Well, I mean, I’d be careful what I wish for. And the reason I say that is that if rates are going to drop down or could drop down into, let’s say, the mid- or low-fives, well, it would likely mean we are already in a very significant economic contraction, AKA a recession. So be careful what you wish for. On the other side of the equation, rates moving palpably higher — I really don’t see any reason for that to happen. It certainly could, and it would have to be because yields on treasuries have jumped, and that would only come from one reason and one reason alone. And that is a lack of belief in U.S. debt. I’m hopeful that that will not be the case. So because of all these factors, yes, I think modestly lower rates. Yes, I think we can get into the high fives. But I certainly do not expect rates to move significantly higher from where they are today.
Hartnett NAR stands out with a forecast of 14% sales growth, roughly double what many portals and economists are predicting. Why is NAR so much more optimistic on transaction volume, and do you think that optimism is warranted?
Hartnett Oh, I do like Laurence [Yun], however, and I say that chief economist, a nice guy. But, I really, quite frankly, don’t share his optimism. Now, it is interesting, though. I mean, most of us are looking in that 2% to 4% growth. I’m a bit more bullish than that, but no one’s in double digits. Now reading what he has put out, what NAR’s published, is that he’s looking at, quite frankly, the same reasons that I see sales able to rise in 2026: falling mortgage rates and higher inventory levels unlocking, in his opinion, pent-up buyer demand. But I mean, a 14% increase means to me that — rough math — we’d have to see sales transactions jump by close to 600,000 units. I admire his enthusiasm and his optimism, but I quite frankly don’t see any reason that would happen other than a very, very significant downturn in overall prices or in mortgage rates. And because I don’t expect to see that occurring, I think he’s a bit optimistic. But you know what — and as always — time will tell.
Hartnett Most forecasters offer fairly tight ranges for mortgage rates, but Compass predicted a wide band, from roughly 5.9% to 6.9%. Does that reflect increased caution, or simply a more realistic view of volatility?
Garder Well, I mean that obviously a very significant range that they’ve put out there, and I think that their position, and certainly I don’t want to talk for them, is that they’re offering really two scenarios: a bullish scenario, whereby we could see, mortgage rates drop down below 6%, or a bearish one, meaning that we could say rates jump up to, I think they said 6.9%. And they did the same thing with sales, which they forecast being somewhere from sales falling by 3.6% or rising by 4.6%. I think that what they’re looking at as far as mortgage rates go is that they’re looking at ten year treasuries, which is appropriate. They’re saying that could range from 4% to 4.8%. Therefore that means that mortgage rates will come in at that 5.9% to 6.9%. But they do give a single number, which is in essence the average of the two, so really they’re saying 6.4%, but at a very wide average. Now, if the economy slows as we talked about, are we heading to a recession? Certainly. Rates can drop because we will see a big move out of people moving money out of equities and into fixed income, into bonds. That means the bond price goes up and the yield comes down. So that could happen, but if rates are rising under that scenario that he’s suggesting, is that we could see potentially if the market is going to be better, or the economy is going to be better, meaning we’re seeing more robust employment growth but also we’re seeing inflation moving potentially back up from where it is today. Well, that means likely the Fed would start to jump in. They would possibly look to increase the Fed funds rate. And as much as the Federal Reserve do not control interest rates, they can certainly have a — they can form a direction for them. They can impact them to a degree. So I think that that is a big range, certainly, but I’m looking at it on both sides of the coin, right? Good market or a bad market. But I wouldn’t say that it is more realistic, because I do not expect to see a lot of volatility in rates in 2026. In fact, in 2025, we saw the lowest volatility levels, as in, the annual high and low of rates, we’ve seen in many years. So less volatile. I think they’re just looking at, it could be this, but it could be that.
Hartnett Matthew, your optimistic forecast combines three things we don’t often see together: rising sales, improving affordability and moderate price growth. What makes that combination possible in 2026, and what would need to go wrong for that outlook to change?
Gardner Well, yes, I certainly, when it comes to the U.S. housing market I am, for want of a better word, a glass-half-full economist. Well, I mean, as we discussed, my forecasts, other than for rates to fall a bit more than others expect, I’m not really far adrift from the consensus. Sales in 2023 and 2024 weren’t only disappointing, but they were well below the average levels we’ve seen from, you know, a 20 year period from 1989 to 2019. Sales over the last two years were below the number that we saw during the financial crisis. So can we get better? Well, it’s very hard to get worse. But the biggest thing is that the big numbers, the huge levels of sales we saw in 2020, certainly in 2021, that pulled a lot of demand forward. And of course, rates jumped in 2022, which, when you think about it, if you’ve got less demand because people had already bought, you’ve also seen mortgage rates doubling, that’s going to slow the market down even further. That caused a drag on sales. I think we’re over that now and we’re starting or continuing to create new households again. I think we’ve got a market out there that is now saying, well, I was hoping for rates to drop back down to 5 or 4% again. I know that’s not going to happen. Therefore, I’m going to buy now because for a lot of people, quite frankly, even if we see a very modest increase in sale prices, there’s going to be a share of people that if they don’t buy now, they won’t be able to afford to buy later on. So I think there’s going to be better demand. So we can see rising sales because of better demand. Moderate price growth — well, we can see modest price growth even though there are some issues with affordability, because the affordability concern comes very much — and it’s very much centered around — first-time buyers. You see, for us that have owned our homes for a reasonable length of time, we’ve made a bunch of money on it and affordability is less of an issue. But the affordability improving can come from lower asking prices. So I think you can actually see sales rising, modest price growth and affordability improving. But again, it’s going to be very much geographically defined. But those things can happen, and I believe that they will.
What would need to go wrong for my outlook to change? Yes, it would have to be rates for some reason or other jumping up. I find that remarkably unlikely. I don’t think that would happen. Price growth jumping to a point whereby affordability declines further? I don’t see that happening either. So I think all in all, modest improvement across the board is one that is the most likely scenario. But of course, who knows what might come around the corner. Certainly, I think that comments being made by the administration could have an impact on the equity markets and on the global markets as well, so not sure about that. We’ve obviously got a new fed chair coming in. We don’t know who it is, although I’ve got a pretty good guess. And so there’s going to be some concerns there as to whether the Fed will continue to be independent. That can have an issue on financial markets as well. So there are some geopolitical potential hiccups out there, but but in general, I believe that as long as we do not head into any form of major economic downturn, slow and steady is the way.
Hartnett All right Matthew, to wrap this up, if you had to describe the 2026 housing market in one word, what would it be and why?
Gardner I would say clarity. Yes, clarity. And why would I say that? I think that there’s a lot of uncertainty, really, quite frankly, going through Covid, coming out of Covid. We weren’t sure what was going to be happening. We saw rates plummet. Wonderful. But then they skyrocketed. Not good. People out there saying, isn’t this 2008 all over again? So I think that, yeah, I think that the market will be less opaque, in 2026. We’ll see some more clarity. And again, for people understanding the fact that for 98% of us, buying a home is the most expensive thing we ever buy in our lives, but if we’re making that decision, we want to be sure about it. So I think we’ll see more clarity and clarity will allow, I believe, prices to rise, transactions to rise. Not to the levels that I’m sure brokers would like, but they will be better in 2026 than 2025 because there will be, from a buyer’s perspective and indeed from a seller’s perspective, more clarity in the U.S. housing market.
Hartnett All right, Matthew, thanks for breaking this down. And for all our sakes, fingers crossed that your predictions, your optimistic predictions, come true.
Gardner I’m always helpful — hopeful, as well as helpful. But I appreciate that, Anne, and everyone out there have a great new year. Take care.
International buyers are pulling back from the U.S. housing market, as high mortgage rates, soaring home prices, a meager supply of homes for sale and a strong dollar all make the purchases much less financially attractive.
From April of last year to this March, international buyers bought roughly 84,600 homes; that’s the lowest number since the National Association of Realtors began tracking such purchases in 2009 and a 14% drop from the year before.
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And while overseas buyers bought fewer homes, they paid more for them. The median price of homes they purchased was $396,400, the highest the Realtors ever recorded.
China, Mexico, Canada, India and Colombia were the top five countries of origin for international buyers of existing homes by number of houses, not dollar volume. The survey does not count new construction, where international buyers are also active.
Chinese buyers had the highest average purchase price, at $1.23 million, likely because a third of them bought in California, where home prices are highest. In total, 15% of foreign buyers bought homes worth more than $1 million.
“Home purchases from Chinese buyers increased after China relaxed the world’s strictest pandemic lockdown policy, while buyers from India were helped by the country’s strong GDP growth,” said Lawrence Yun, NAR’s chief economist, in a press release. “A stronger Mexican peso against the U.S. dollar likely contributed to the rise in sales from Mexican buyers.”
While foreign sales dropped overall, Chinese purchases did make sizable gains. The total of 2023 Chinese home purchases is the highest since 2018, which was one of the peak years for Chinese international property purchasing, according to Juwai IQI, an Asia-based international real estate technology group.
“Only about one in every 10 Chinese buyers is purchasing purely as an investment, which is a big change from the mid-2010s, when wealthy Chinese consumers looked to diversify their wealth out of China,” said Kashif Ansari, Juwai IQI co-founder and group CEO. “In 2023, the typical Chinese buyer is no longer an offshore investor but is on their way towards becoming an American resident and citizen.”
Foreign buyers continue to flock to the same places as they have in the past, namely Florida (23%), California (12%), Texas (12%), North Carolina (4%), Arizona (4%) and Illinois (4%). Chinese buyers in particular like California, as they often buy so that their children can attend local schools and universities.
“Florida, Texas and Arizona continue to attract foreign buyers despite the hot weather conditions during the summer and the significant spike in home prices that began a few years ago,” Yun added.
About 42% of foreign buyers used cash. As for why they are buying, half purchased the properties for use as a vacation home, rental property or both, up from 44% the previous year.
The drop in overall foreign purchases is unlikely to ease the competition for domestic buyers, as international buyers only made up a little more than 2% of all buyers. But it could help on the margins in certain local markets favored most by foreign buyers.
Today’s domestic buyers, however, are more concerned with mortgage rates, which are more than twice what they were in the first two years of the pandemic, and with the meager supply of homes for sale.
U.S. mortgage rates continue to fall as buyers gear up for the spring market.
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The decline in mortgage rates over the last month likely will boost U.S. home sales by more than 200,000 as cheaper financing results in more people qualifying for loans, according to Lawerence Yun, chief economist of the National Association of Realtors.
“Each half a percentage point drop in mortgage rates results is an additional 200,000 home sales, and likely even more,” said Yun. “Since more people will qualify for mortgages, it leads to more sales.”
The average U.S. rate for a 30-year fixed home loan dropped to 6.28% last week from 6.73% in March’s first week, according to Freddie Mac. That decline in the cost of financing reduces monthly payments, meaning more buyers will pass the debt-to-income test lenders use to qualify applications.
“Lower mortgage rates open the gate – not for everyone, but for people who were on the margins,” Yun said.
Mortgage rates likely will remain near near the current level in the short term and decline further in the coming months, Yun said. The average U.S. rate for a 30-year fixed mortgage probably will be 6.3% in the second quarter and 5.9% in the third quarter, he said.
About 40% of U.S. home sales go under contract in the April to June period, according to data from NAR. Those sales typically close about two months later, with the buyers moving in the summer months.
“We’re smack dab in the peak of the spring home-buying season right now,” said Bill Banfield, executive vice president of capital markets for Rocket Mortgage. “People want to get into a home and settle their families before the new school year starts.”
Mortgage rates hit 20-year highs at the end of October and again in early November, according to Freddie Mac data, after inflation spooked investors and the Federal Reserve ended a bond-buying program aimed at supporting the economy during the worst of the pandemic.
Rates remained near those peaks until last month’s failure of Silicon Valley Bank, the 16th-largest U.S. commercial bank by assets, and Signature Bank, a smaller bank based in New York that catered to cryptocurrency investors.
That financial instability sent Wall Street investors scurrying for the perceived safety of the bonds markets. The increase in competition for fixed assets sent the average yield on 10-year Treasuries, a benchmark for mortgage rates, to a seven-month low last week, according to data from Intercontinental Exchange.
“Whenever there is unrest in the markets, mortgage rates tend to drop – especially with the Federal Reserve committed to fighting inflation,” said John Hardesty, general manager of the mortgage division at Argyle, a payroll data verification platform used by lenders. “We’re seeing some settling in mortgage rates, and it’s the perfect time for that.”
Existing home signed sales contracts went down 4% in November, extending the slide to ten months straight.
It’s further evidence of a continued slowdown in the housing sector, with prices down 9.1% since May.
It’s an expected side effect of the Fed’s policy of raising interest rates to bring down inflation, with the average 30 year fixed rate mortgage doubling over the past year.
The housing market in the US has had a rough few months. According to the National Association of Realtors, contracts to buy previously owned homes in the US fell a lot more than expected in November – the sixth straight month of decline.
The main reason behind the fall is due to the Federal Reserve raising interest rates in an attempt to curb inflation, which is causing the housing market to almost grind to a halt.
The NAR’s Pending Home Sales Index, which is based on signed contracts, showed that the number of contracts fell by 4% to 73.9 in November. To put that in perspective, contracts are down 37.8% compared to the same time the previous year. Ouch.
But why is this happening? Well, the housing market is particularly sensitive to changes in interest rates, and the Fed’s aggressive rate hikes have caused borrowing costs to increase significantly. In fact, the 30-year fixed mortgage rate reached 7% in October for the first time since 2002, more than doubling in just nine months.
New mortgages are now a heck of a lot more expensive than they were a year ago, and it’s making potential buyers wary of diving in on such a major purchase.
This sudden increase in borrowing costs has essentially pulled the rug out from under what had been a red-hot housing market, which was fueled by historically low borrowing costs and a rush to the suburbs during the coronavirus pandemic.
The decline in signed contracts means that existing home sales are also certain to fall after notching their 10th straight monthly decrease in November. According to data from the previous week, the annual sales rates of both new and existing homes have decreased by 35% since the beginning of the year, reaching their lowest point since 2011. This represents one of the quickest declines on record.
And to make matters worse, new single-family housing starts and permit issuance reached a two-and-a-half-year low last month as well.
So, it looks like the housing market is feeling the effects of the Fed’s actions in real-time, and it’s not looking good. NAR Chief Economist Lawrence Yun summed it up by saying, “falling home sales and construction have hurt broader economic activity.”
Where to from here for the housing market?
There’s no getting away from it, the situation is probably going to get worse before it gets better. The Fed has made it clear that they plan to hike rates as much as they need to in order to get inflation back down to the target range of 2-3%.
It has started to come to head back down, but it’s still staggeringly high at 7.1%.
That means we can expect rates to go up further from here, and potentially by quite a lot. For potential homebuyers, mortgages are therefore going to continue to get more expensive. That’s going to mean fewer buyers on the market for homes, which is going to further put the brakes on real estate activity.
And that’s the whole point.
Anyone who expects the housing market to pick up soon will find themselves face to face with the Fed, who are determined to take the heat out and bring down inflation.
After every Federal Open Market Committee meeting, where the members of the Fed agree on where to set the rates, individual members are surveyed on where they see rates 12 months from now.
This is known as the ‘dot plot’ due to the way the data is represented, and the current dot plot shows the median expectation for rates is that they hit 5.1% by the end of next year. That’s still a significant increase from the current level of 4.25 – 4.5%.
What does that mean for potential home buyers?
If you’ve been looking to get on the housing ladder, this change in interest rate policy is likely to have thrown you for a bit of a loop. The houses you’ve been eyeing up probably haven’t come down in price, but the mortgage you’d need to buy it definitely has.
The ongoing pressure on the housing market is likely to cause prices to moderate in the short to medium term. We’ve already seen this start to happen. According to Redfin, the median sale price in May in the US hit $433,425. In May, that’s slid to $393,682.
If interest rate continue to go up as they’re expected to, and home sale numbers also continue to fall, it’s highly likely that prices will keep going down too.
That’s going to take some of the sting out of the rising cost of a mortgage. You’ll still be paying a higher level of interest than you would have been 12 months ago, but if the price of the home you’re buying going down too, then the mortgage might not be as big.
Either way, one of the best ways to help insulate yourself against these sorts of changes is to have a bigger down payment.
The bigger the down payment, the more mortgages that will likely be available to you and the lower your ongoing repayments can be. For those looking to boost the size of their down payment, there are a couple of options you can consider.
Obviously you could try to save more of your income. That’s easier said than done in the era of sky high cost of living. The other alternative is to look to the investment markets in an aim to grow your down payment that way.
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New home and multifamily construction projects slated for delivery in 2024 and 2025 are expected to … [+] be delayed.
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The housing market is sending clearer signals that historically low mortgage rates and the home-buying frenzy have come to an end. As we near the end of 2022, here’s a look at the expectations of real estate experts for 2023.
Danielle Hale, Realtor.com chief economist: After several years of an unambiguous sellers’ market, the 2023 housing market could feel more like a nobody’s market. We expect to see some buyer advantages in the form of 22.8% more homes for sale, however, the increase will result largely from homes taking longer to sell amid challenging affordability conditions. For-sale homes will remain high-priced with the national annual median price for 2023 expected to advance another 5.4%—less than half the pace observed in 2022. Still high prices mean that homeowners are likely to walk away from a home sale with significant equity if they decide to venture into the market and can find a buyer. On the whole, however, we expect home sales to be dramatically lower, down 14.1% compared to 2022 as both buyers and sellers pull back from a housing market and economy in transition. We expect the annual tally for 2023 to be roughly in line with the recent pace of home sales in late 2022.
For many potential first-time home buyers, 2023 will herald a delayed dream rather than a celebration as home costs exceed what’s possible on their budget and income. As fewer households make the jump to homeownership, increased rental demand could help keep rents moving higher. Nationwide, the median rental is projected to increase 6.3% in price, even as an influx of new multifamily housing helps to better meet rental demand. Renters looking to save in the year ahead may consider moving further out to the suburbs.
A still strong jobs market will keep incomes growing at a faster than historically average pace (3.9%), but they will not exceed expected inflation (4.1%) which means that many households will continue to make tough budget tradeoffs. After years of high-flying tech cities dominating real estate who’s-who lists, this year’s top performers are expected to be modest, mid-sized domestic industry hubs in the Northeast, South, and Midwest. The slow and steady real estate markets in these areas where homes continue to be affordable will be the stars in 2023, better weathering the affordability challenges that loom ahead.
Affordable rental housing is essential to improving overall affordability and household stability in … [+] the housing market.
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Bob Pinnegar, president and chief executive officer of the National Apartment Association: Pursuing sustainable and responsible solutions to address our nation’s housing affordability crisis will remain a steadfast priority in the new year. Our nation’s affordability challenges stem from an alarming supply/demand imbalance, and to properly address this we must build 4.3 million new apartments by 2035.
On the economic side, supply chain issues have begun to ease and will hopefully continue to in the year ahead. While jobs are steady, the labor market faces challenges in areas like construction, where workers are needed. Inflation is starting to show signs of easing, but any of those impacts are unlikely to be seen until the end of 2023.
State and local lawmakers continue to consider damaging policies like rent control, which more than 40 years of academic research and real-life case studies consistently reiterate is ineffective in addressing affordability. Rent control distorts the housing market by acting as a deterrent and disincentive for rental housing development and expedites the deterioration of existing housing stock. As these policies continue to be discussed, the rental housing industry will continue to advocate for responsible solutions – like revitalizing Section 8 and removing barriers to apartment development – that will improve affordability challenges long-term.
Nick Bailey, president and CEO of RE/MAX, LLC: One thing I can say for certain about the housing market in 2023 is that no matter the macro-economic conditions, Americans will continue to buy and sell millions of homes. Generally speaking, when we’re talking about the overall health of the housing market, most people are approaching that conversation from the lens of an investor. Will the market bottom out or have we hit the top? That’s an important conversation, but the truth is, people are getting married, divorced, moving to care for aging family members, relocating for career opportunities and so on, every single day. And for those people, it’s less about the interest rate or mortgage rates that week and more about their present situation and whether they can afford a house that fits their needs.
I’m optimistic that 2023’s spring selling season will be a bright spot as levels of inflation get more under control. There will still be extreme demand as new construction just can’t get out of the ground fast enough, and the Millennial home buyers, who make up a huge demographic, are primed to make their move. According to a recent survey conducted by RE/MAX in partnership with SWNS Media Group, 84% of Gen Z, 79% of Millennials and 61% of survey respondents 77 or older plan to buy a house or condo in the next few years. In my opinion, 2023 will be a better year for housing than many people think, especially because we’ll no longer have year-over-year comparisons to 2021 – an historic outlier that made 2022 seem less than what it really was.
Jacob Channel,senior economist for LendingTree: The housing market will remain tough for many would-be buyers. While mortgage rates might stabilize, prices could decline, and buyers may be able to negotiate with sellers more in 2023 than they were able to over the height of the pandemic, that doesn’t mean that buying a home is suddenly going to become a walk in the park. On the contrary, affordability challenges will likely persist for many, owing to rates remaining steep and supply remaining limited.
Borrowers shouldn’t expect rates to fall to anywhere near their record 2021 lows, or even to as low as they were at the start of 2022. Home prices won’t necessarily fall everywhere, but a combination of relatively high rates and weak home buyer demand will probably push prices down nationwide this year. Although a 5% to 10% drop may seem steep, it’s important to keep in mind that because home values rose so much over the height of the pandemic, declines this year are unlikely to totally wipe out the gains that many homeowners saw over the past few years.
Atlanta is expected to be a top real estate market to watch in 2023 and beyond.
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Lawrence Yun, chief economist for the National Association of Realtors and senior vice president of research: 4.78 million existing homes will be sold, prices will remain stable and Atlanta will be the top real estate market to watch in 2023 and beyond. Home sales will decline by 6.8% compared to 2022 (5.13 million) and the median home price will reach $385,800 – an increase of just 0.3% from this year ($384,500).
Half of the country may experience small price gains, while the other half may see slight price declines. However, markets in California may be the exception, with San Francisco, for example, likely to register price drops of 10–15%. Rent prices will rise 5% in 2023, following a 7% increase in 2022. Foreclosure rates will remain at historically low levels in 2023, comprising less than 1% of all mortgages. The gross domestic product will grow by 1.3%, roughly half the typical historical pace of 2.5%. After eclipsing 7% in late 2022, the 30-year fixed mortgage rate will settle at 5.7% as the Fed slows the pace of rate hikes to control inflation. That is lower than the pre-pandemic historical rate of 8%.
Consumer spending will remain supported by a tight labor market.
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Taylor Marr, Redfin deputy chief economist: Slowing inflation and the hope of the Fed easing rate hikes in the new year are likely to bring mortgage rates down further and thereby improve homebuying demand. But don’t call it a comeback or even a recovery yet; demand is still way down from its peak. We’re keeping a close eye on the labor market for confirmation that inflation will continue slowing. A strong job market like the one we have now contributes to inflation because it pushes up wages and leads to higher prices. Though it seems counterintuitive, a slight uptick in unemployment and/or slower economic growth would likely help bring mortgage rates down further. If that happens, the increase we’re seeing in early-stage demand could translate to an uptick in pending sales in early 2023.
Selma Hepp, interim lead of the Office of The Chief Economist at CoreLogic: Following the recent mortgage rate surge above 7%, real estate activity and consumer sentiment regarding the housing market took a nosedive. Home price growth continued to approach single digits in October, and it will move in that direction for the rest of the year and into 2023. However, while some housing markets have seen significant recalibration since the spring price peak and are likely to post losses in 2023, further deteriorating for-sale inventory, some relief in mortgage rate increases and relatively positive economic news may help eventually stabilize home prices.
Jeff Tucker, Zillow senior economist: The rental market is cooling, but to this point it hasn’t brought any real relief for renters. However, there are signs affordability may improve in the coming months. Annual rent growth has fallen from a record 17.2% annual growth in February to 8.4% year-over-year growth in November.
Renters looking to sign a new lease in 2023 should feel encouraged about this data, but still need to keep a close eye on the market and act quickly when they find a rental that fits their needs and budget. Rents are still higher than they were pre-pandemic, so tradeoffs and flexibility will still be necessary into next year. Renters facing a renewal should know that they’ve got more bargaining power this year and should carefully consider the prices of other nearby rental options when negotiating a lease renewal.
Many real estate brokerages are expected to consolidate.
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Kuba Jewgieniew, CEO and founder of Realty ONE Group: Homeowners will stay in homes due to locked-in lower interest rates. Regarding Realtors, 300,000 to 400,000 new licensees entered the real estate market over the past couple of years (similar to the relative percentage growth of NAR members between 2005-07).
Many top-producing professionals and teams that have been closing $100 million per year in transaction sales, chose this career path during real estate’s hot markets (2012-2020). So, they haven’t experienced a severe downward cycle like this since 2008. There are more than 90,000 real estate brokerages in America. Of these, many will consolidate, and others will get wiped out. Their Plan B funding source for access to capital, just to stay afloat, are friends and family.
The average interest rate on a credit card is now at a high of over 18% and expected to be in the 20’s soon. Home equity lines of credit are increasingly popular during high inflationary times.
Lisa Sturtevant, chief economist for Bright MLS: Over the past year, the housing market underwent an about-face as rapidly rising mortgage rates dramatically slowed home sales activity. In 2023, the housing market is expected to continue its correction and the housing market will start to look more normal, though we may need to reconsider what normal means. Mortgage rates will decline slowly in 2023, though will remain above 6% for most of the year. While not high by historic standards, 6% mortgage rates along with fast-rising prices will also keep some prospective buyers out of the market. Bright MLS’ forecast suggests that there will only be 4.87 million home sales in 2023, down 6% compared to 2022, and the lowest level of sales activity in nine years.
The median home price is expected to be relatively flat in 2023, rising just 0.3% year-over-year. But the national figure does not tell the whole story. Local markets that are more affordable and where the local economy is strong will see stronger price growth in the year ahead. In contrast, higher-cost metros, where housing affordability is a challenge, are at greater risk of price drops. In addition, pandemic boom towns where demand surged will also see greater price corrections in 2023. The frenzied pace of home sales activity during the pandemic was not typical or sustainable, nor is it good for a healthy, stable housing market. A return to a slower market with more modest price growth is a good place to be headed in 2023.
L.D. Salmanson, CEO of Cherre, a data integration and insights platform: Looking at the current market, we are seeing fewer transactions and increasing days on market. Low absorption rates indicate a price gap between buyers and sellers. Historically, this environment had been temporary — people lost their jobs while still carrying mortgages at variable rates. This will likely force sellers to have a reality check in 2023, needing to lower prices to make the sale. As interest rates continue to rise, the housing market is less appealing to potential buyers and mortgage applications are extremely low. Though a few very specific markets have sustained demand, most markets will see large corrections, and some markets, like South Florida, will even experience 20-30% price drops.
Any time there is a hot housing market with a sharp increase in the median home price, there is the possibility of a housing bubble. After home prices hit their peak in June, we saw the first decline in home price growth in 10 years, with the lagging Case-Shiller Index showing price increases falling 1.3%. Black Knight also reported that U.S. home equity dropped 7.6% in Q3, marking the largest drop since 2009. Though we are not technically currently in a housing bubble or experiencing a major market crash, declining prices coupled with interest rates climbing higher than 7.14% indicates that we are experiencing a market downturn that will continue into 2023.
Major economic or geopolitical changes could, as they did this past year, upend interest rate … [+] forecasts.
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Kate Wood, home expert at NerdWallet: After three years of a wildly unbalanced housing market, it’s tempting to hope 2023 will at last bring normalization. But the market remains far from normal, even if it’s no longer going to extremes. Rates have fallen from the peaks of October and November, but with continued upward pressure from the Federal Reserve the lows we’re seeing now could just be the eye of the hurricane. And major economic or geopolitical changes could, as they did this past year, totally upend rate forecasts. Home prices will likely continue dropping next year, but this won’t be a bubble bursting. These price drops will be more like a balloon slowly deflating — no longer headed skyward, but still hovering out of reach for many. Markets seeing the most significant drops will be those where home values grew the most rapidly, so even with prices dropping, home values will probably still be up year-over-year. Even with higher interest rates forcing some buyers out of the market, demand will likely continue to outstrip supply because the supply just isn’t there.
Many would-be sellers will likely be unwilling to give up the historically-low interest rates they purchased at or refinanced to for a rate that could be double. We may see an increase in homeowners moving without selling. Instead of giving up the low payment on their previous homes, they’re keeping them and converting them into single-family rentals. With a tenant’s rent covering the mortgage while the owner’s equity continues to grow, this can be a win-win for the seller. For home buyers, though, these are more potentially affordable homes that won’t go on the market. Nonetheless, buyers will probably continue to gain traction in 2023.
Jamison Manwaring, CEO and co-founder of Neighborhood Ventures: 2023 will be the first normal year for housing since 2019. After big run ups in housing costs in 2020 and 2021 followed by 4% increase in interest rates to slow the market in 2022, 2023 is set up to be a more normal year as interest rates stabilize and more newly constructed housing units are added. The supply of new units will be offset by the number of homeowners not moving because their interest rate is much lower than a new loan.
New home and multifamily construction projects slated for delivery in 2024 and 2025 will be delayed because the run-up in interest rates have made these ventures less profitable. Housing costs will remain flat and may even decline in some Sun Belt markets. Additional supply of new construction multifamily units will be delivered throughout 2023, mostly in Sun Belt states helping to ease housing costs. These high growth areas have suffered from housing shortages and new supply has been slow due to materials and labor shortages and Covid-related delays. But many of these projects will be delivered during 2023 adding thousands of additional units.
Jack Macdowell, chief investment officer at Palisades Group: Our base case shows housing activity dropping significantly in 2023 due to lower levels of purchase demand and limited housing inventory. At least through the first half of 2023, persistent labor market imbalances created in part by an undersupplied labor force will likely keep inflation elevated and policy rates restrictive. Barring unforeseen events, geopolitical or otherwise, we would expect volatility to subside alongside the Fed reaching the zenith of rate hikes, leaving room for mortgage rates to drop below 6%, and easing the debt service burden for would-be home buyers.
We expect mortgage delinquencies to rise as disposable income levels and consumer savings diminish. However, given the default management toolkit and large amounts of home equity, we are unlikely to see a material increase in foreclosure activity that leads to distressed property sales. 2022 and 2023 will likely be remembered as the years where the housing market sowed the seeds for future pent-up demand as would-be home buyers continue to get forced into the rental market due to affordability pressures. In the absence of new supply added to the housing stock, the release of this pent-up demand could come as soon as 2024.
Federal Reserve chairman Jerome Powell at a news conference on interest rate policy.
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Lazer Sternhell, CEO of Cignature Realty: The federal fund’s target rate is projected to hit 4.6% in 2023, which makes it extremely difficult for investors to evaluate multifamily deals: what will interest rates be at closing, what refinancing events will be available down the line, and what will an exit strategy look like? Investor preference will continue to be focused on free market buildings in prime locations.
Instability in the capital markets and rising interest rates have significantly curtailed multifamily investment activity and higher commercial mortgage rates are sending buyers to the sidelines. Private buyer tolerance for volatility keeps investment activity afloat. If rates stabilize in 2023, institutional investors will provide a further tailwind to the multifamily investment market.
Multifamily’s underlying solid fundamentals over the last 10 years delivered an average annual total return of over 9%. We expect multifamily to perform above average in 2023 despite economic headwinds and ongoing capital market disruptions. Multifamily real estate is one of the best asset classes for hedging inflation. Investors will wait for the multifamily market to stabilize.
First-time buyers were responsible for 28% of sales in October.
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Existing home sales retreated for the ninth straight month in October as higher mortgage rates discouraged potential buyers, according to the National Association of Realtors. All four major U.S. regions registered month-over-month and year-over-year declines.
Total existing home sales — completed transactions that include single-family homes, townhomes, condominiums and co-ops — decreased 5.9% from September to a seasonally adjusted annual rate of 4.43 million in October. Year-over-year, sales dropped by 28.4% (down from 6.19 million in October 2021).
“More potential home buyers were squeezed out from qualifying for a mortgage in October as mortgage rates climbed higher,” said NAR chief economist Lawrence Yun. “The impact is greater in expensive areas of the country and in markets that witnessed significant home price gains in recent years.”
Total housing inventory registered at the end of October was 1.22 million units, which was down 0.8% from both September and one year ago (1.23 million). Unsold inventory sits at a 3.3-month supply at the current sales pace, up from 3.1 months in September and 2.4 months in October 2021.
“Inventory levels are still tight, which is why some homes for sale are still receiving multiple offers,” Yun added. “In October, 24% of homes received over the asking price. Conversely, homes sitting on the market for more than 120 days saw prices reduced by an average of 15.8%.”
The median existing-home price for all housing types in October was $379,100, a gain of 6.6% from October 2021 ($355,700), as prices rose in all regions. This marks 128 consecutive months of year-over-year increases, the longest-running streak on record.
Properties typically remained on the market for 21 days in October, up from 19 days in September and 18 days in October 2021. Sixty-four percent of homes sold in October 2022 were on the market for less than a month.
“Affordability constraints are throwing a wrench into the previous momentum of the market, causing home buyers to step back as they are being priced out,” said Zillow senior economist Nicole Bachaud. “And home sellers are not immune either. Current rates are forcing would-be sellers to stay put in their existing homes with much lower rates, reducing the flow of new listings onto the market.”
“Both a pullback in demand and supply are limiting sales counts,” she added. “Without a significant improvement in affordability, existing home sales will likely continue to disappoint compared to the pandemic peak. Recent downward movement in mortgage rates might provide some reprieve in the coming months, but with home values appearing to hold strong, affordability challenges remain top of mind.”
First-time buyers were responsible for 28% of sales in October, down from 29% in both September 2022 and October 2021. NAR’s 2022 Profile of Home Buyers and Sellers – released earlier this month – found that the annual share of first-time buyers was 26%, the lowest since NAR began tracking the data.
“Home sales are plummeting, and prices have fallen four months in a row,” said Holden Lewis, home and mortgage expert for NerdWallet. “It’s a classic tale of prices falling along with demand. But supply is dwindling, too, a situation that has kept prices from falling further than they otherwise would have.”
All-cash sales accounted for 26% of transactions in October, up from 22% in September and 24% in October 2021. Individual investors or second-home buyers, who make up many cash sales, purchased 16% of homes in October, up from 15% in September, but down from 17% in October 2021. Distressed sales – foreclosures and short sales – represented 1% of sales in October, down from 2% in September and identical to October 2021.
The sharp increase in interest rates has upended home purchases as more would-be buyers get pushed … [+] out of the market.
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According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage was 6.90% in October, up from 6.11% in September. The average commitment rate across all of 2021 was 2.96%.
“Mortgage rates have come down since peaking in mid-November, so home sales may be close to reaching the bottom in the current housing cycle,” said Yun.
Realtor.com’s Market Trends Report in October shows that the largest year-over-year median list price growth occurred in Milwaukee (+34.5%), Miami (+25.1%) and Kansas City (+21.4%). Phoenix reported the highest increase in the share of homes that had prices reduced compared to last year (+35.9 percentage points), followed by Austin (+31.2 percentage points) and Las Vegas (+24.4 percentage points).
Single-family and condo/co-op sales
Single-family home sales declined to a seasonally adjusted annual rate of 3.95 million in October, down 6.4% from 4.22 million in September and 28.2% from one year ago. The median existing single-family home price was $384,900 in October, up 6.2% from October 2021.
Existing condominium and co-op sales were recorded at a seasonally adjusted annual rate of 480,000 units in October, down 2% from September and 30.4% from the previous year. The median existing condo price was $331,000 in October, an annual increase of 10.1%.
“For consumers looking to buy or sell a home, having a Realtor by their side to navigate one of the more challenging and complex markets we’ve seen in some time will be essential to successfully completing transactions,” said NAR President Kenny Parcell, a Realtor from Spanish Fork, Utah and broker-owner of Equity Real Estate Utah. “Realtors understand local market conditions and provide timely and trusted advice, from listing to closing.”
Regional breakdown
Existing-home sales in the Northeast trailed off 6.6% from September to an annual rate of 570,000 in October, a decline of 23.0% from October 2021. The median price in the Northeast was $408,700, an increase of 8.0% from the previous year.
Existing-home sales in the Midwest retracted 5.3% from the previous month to an annual rate of 1,080,000 in October, falling 25.5% from the prior year. The median price in the Midwest was $274,500, up 5.9% from October 2021.
In the South, existing-home sales declined 4.8% in October from September to an annual rate of 1,980,000, a 27.2% decrease from this time last year. The median price in the South was $346,300, an increase of 8% from one year ago.
Existing-home sales in the West waned 9.1% from September to an annual rate of 800,000 in October, down 37.5% from one year ago. The median price in the West was $588,400, a 5.3% increase from October 2021.
Compass president Neda Navab said would-be sellers locked in at ultra-low mortgage rates are understandably reluctant to list their homes for sale today and trade that rate in for one that is twice as high, which keeps inventory low and upward pressure on prices.
“There have been some faint signals recently that mortgage interest rates may be at or near their peak, and might fall into the 5% range late in the second quarter or in the second half of 2023,” she said. “But that’s by no means guaranteed, and rates will more likely need to fall back into the 4% range to really unlock demand again – which still looks to be a long way off.”
