- There’s a growing consensus that US home prices will slide or crash in 2023.
- But the director of real estate research at the National Association of Realtors doesn’t believe it.
- Here are three reasons why there won’t be a housing market crisis this year.
Renters hoping to buy a home after the US housing market collapses may be waiting a while.
Many pundits have warned recently that property prices are on thin ice, but a report released last week by the National Association of Realtors (NAR) showed the opposite: prices for existing single-family homes in the US rose 4% year-over-year in the fourth quarter of 2022.
Existing home prices increased from the previous year in an astounding 89% of the 186 metro areas surveyed by the NAR. And 18% of cities saw prices jump by double digits in the fourth quarter, according to the report, though that was down from 46% of markets in the prior quarter.
The strength came as a shock considering how high homebuyers’ borrowing costs are, said Nadia Evangelou, the NAR’s director of real estate research, in a recent interview with Insider. Her firm found that the average monthly mortgage payment on an existing single-family home with a 20% down payment was $1,969, which is 58% higher than in the fourth quarter of 2021.
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3 reasons why home prices won’t plummet
Perhaps even more surprising than last quarter’s home price growth is Evangelou’s belief that US home prices will defy the consensus expectations by staying elevated throughout the year.
There are three reasons why the US housing market is unlikely to see widespread price declines in 2023, Evangelou said: home inventory remains low, mortgage rates are falling, and pending home sales are rising.
Students in Econ 101 could explain the first point: a limited supply of houses nationwide creates scarcity that should keep supporting prices, despite the fact that there are fewer homebuyers.
“The supply is not enough,” Evangelou told Insider. “There are not enough homes that can make prices drop — even though there’s less demand.”
Demand for homes has started to dry up because borrowing costs remain uncomfortably high, putting home ownership out of reach for millions of families. Thirty-year fixed mortgage rates rose to the highest level in two decades in late 2022 while the Federal Reserve rapidly raised interest rates to try and get historically high inflation under control.
But mortgage rates have since fallen from their mid-November peak of 7.1%, and Evangelou expects borrowing costs to keep coming down while the Fed shifts to smaller rate hikes.
Even a slight improvement in home affordability should stimulate demand, Evangelou said.
“As Americans can afford to buy — the typical family can afford to buy a medium-priced home — we are going to have more buyers back to the market,” Evangelou said.
There’s already evidence that lower mortgage rates are starting to bring homebuyers back, Evangelou said: pending home sales rose in December for the first time in seven months. She noted that the metric, which shows home contract signings, foreshadows future home sales.
“Usually, the pending home sales is the indicator for the existing home sales,” Evangelou said. “There is a lag of about one to two months, which is the period that it takes for a contract to be closed. So we expect home sales activity to pick up in the following months. Sometime in the next couple of months, we expect more buyers to be back to the market as rates are near 6%.”
Another near-term driver for the housing market is the seasonal trend of demand picking up in warmer months, Evangelou said. She thinks mortgage applications will rise through the spring.
Source: Business Insider
