After a frenzied 2022, the US housing market has taken the slow road so far this year. On the back of soaring mortgage interest rates and low inventory, sales have plummeted across the country. On the other hand, house prices have continued their upward trend throughout 2023. With these factors in mind, what’s in store for the market this coming autumn?
Analysts concur that current market conditions are challenging, particularly for first-home buyers. According to Mark Zandi, Chief Economist at Moody’s Analytics and quoted in Realtor.com, the US housing market “is weak and going nowhere fast”.
A number of factors have contributed to this situation. They include:
Lack of inventory
The US housing market has very little supply after unprecedented demand since the pandemic. According to Realtor.com, August saw slightly more houses on the market. However, there are still not enough to meet demand.
Low inventory levels force house prices up, and most parts of the US have seen values continue to rise this year.
More expensive mortgages
Despite falling inflation, the Fed has kept interest rates high this year. For mortgages, they currently stand at 7%, making repayments 90% higher than two years ago.
US housing market this autumn
This autumn looks to follow a similar pattern, particularly for buyers entering the market for the first time.
Same interest rates
General consensus is that the Fed won’t increase rates for the rest of this year and most analysts believe they’ll stay the same. However, there are no signs of imminent drops in the near future.
No real new supply
Despite August’s slight inventory uptick, analysts doubt supply levels will return to higher levels this year. While mortgage rates remain high, homeowners who would sell under normal conditions are reluctant to give up their current low rates. As a result, there’s no prospect of significant improvement in supply in the short term.
Homebuyers, therefore, face a challenging market, and it’s no wonder that at least 20% of Americans claim they could only buy if they won the lottery.
New-home construction is the exception
However, Realtor.com does find some cause of optimism, calling new construction the “bright spot” in the US housing market. This echoes Knight Frank’s comment that US new homes are 2023’s surprise winner.
Firstly, new builds have wider availability and now account for a record proportion of the market. In July, for example, new properties accounted for around a third of available inventory, over twice their historic average of 10 to 15%.
Secondly, new homes are no longer much more expensive than resale properties. According to the National Association of Realtors, new builds have narrowed the price gap over the last year. In July, their median stood at US$436,700, just US$30,000 more than a resale.