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Housing market outlook for mid-2023: What to expect for the rest of the year?

Although this is the season when demand for housing is supposed to skyrocket, the housing market remains fairly chill. The national average 30-year fixed mortgage rate remains elevated compared to last year, hitting a year-to-date high of 6.79% the week ending June 1, according to Freddie Mac. That represented a 40 basis-point jump from a month prior. According to the National Association of Realtors, existing home sales remained relatively flat in May, raising 0.2%.

U.S. Total Housing Inventory

Source: National Association of Realtors

Low housing inventory has been a challenge since the 2008 housing market crash when the construction of new homes plummeted. This decline isn’t expected to recover this year. This is due to a number of factors, including the slow pace of new home construction, the large number of millennials who are now entering the homebuying market, and the increasing popularity of remote work, which has allowed people to move to more desirable areas. Moreover, the rising costs of land and labor, as well as regulatory hurdles, contributed to the overall decline of home supply.

Investors are also buying up homes, which is reducing the supply for homebuyers. Investors are buying homes for a variety of reasons, including to rent them out or to flip them for a profit. BlackRock, the largest asset management company in the world, has denied purchasing individual homes. The asset management company emphasized that it is a significant investor in mortgage securities, and helps make capital available to individuals and families seeking to purchase homes.

At the current pace sales, unsold inventory of existing homes is at a 2.9-month supply, according to NAR. With reportedly 85% of homeowners sitting on mortgage rates below 6%, industry experts have a gloomy outlook on when inventory will eventually normalize.

However, single-family construction starts rose for the third consecutive month, increasing 1.6% in April in applications for building permits ticked down 1.5% from the previous month, according to the Census Bureau and HUD.

The initial 2023 forecast, which came out in November 2022, was based on the market’s imbalance between demand and supply, and skepticism that homeowners would lower their asking price, given the high values properties were selling for. That’s as 2022 saw a 10.2% jump in home prices. But home prices did fall this year, especially in the most expensive regions.

The most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) that tracks builder sentiment jumped from 45 to 50. This is the fifth month-over-month increase following 12 consecutive months of declines and the first time since July 2022 that the index touched 50. Alicia Huey, Chairman at NAHB, said: “New home construction is taking on an increased role in the marketplace because many homeowners with loans well below current mortgage rates are electing to stay put, and this is keeping the supply of existing homes at a very low level.”

Home prices remain stubbornly elevated, perpetuating affordability challenges for many, especially first-time homebuyers. Housing supply remains very limited as home inventory is expected to not increase significantly for the remainder of the year. As the Federal Reserve is anticipating two more rate hikes by the end of the year, this will even pump up fixed mortgage rates.


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