Home sales have been fluctuating but remain above recent lows, due to a combination of job gains, limited inventory, and fluctuating mortgage rates. Understanding these trends can help agents, individuals and policymakers make informed decisions to create a more equitable, accessible, and sustainable housing market. Let’s look at some key trends expected to shape the US housing market for the remainder of 2023 and provide some insights into the current state of the market.

The state of the real estate market in the US is a topic of keen interest with it’s fluctuating mortgage rates, shifting supply-demand dynamics, and varying predictions from experts. Understanding the current landscape is crucial for agents, homebuyers and sellers alike. In this article, we will delve into the latest insights and trends of the state of the United States real estate market. 

State of the real estate market in the US 

The pandemic has led buyers and sellers to re-evaluate their living arrangements, with importance placed on larger homes and more space. This shift in priorities results in higher demand for housing in suburban and rural areas, leading to increased prices in these locations this year. 

Housing prices have continued to rise due to limited supply and high demand. This trend is expected to persist for 2023, particularly in urban areas where supply is limited, making it harder for some individuals to enter the market. As the economy recovers and interest rates rise, mortgage lenders have become more cautious about who they lend to. This could make it more difficult for some individuals to qualify for a mortgage and realize their dream of homeownership. 

The adoption of technology in the real estate industry has accelerated this year, too, with virtual home tours and digital transactions becoming more common in North America. This trend is expected to continue, streamlining the home buying and selling process and potentially addressing affordability challenges through innovations like modular homes and 3D printing. For more on the future of the digitization of the real estate sector read this Interview with Gerard Paratte, CEO of Properstar and ListGlobally, who offers us his vision for real estate, and an analysis of the current state of the real estate market in Europe. 

Banking instability 

The collapse of Silicon Valley Bank (SVB) in March 2023 had significant implications for the housing market and the broader financial industry. SVB collapsed after experiencing a $1.8 billion loss and credit downgrade, causing customers to withdraw their deposits and leading to its downfall. HSBC plans to purchase the UK portion of SVB, and the US government stepped in to protect customer deposits. The collapse of SVB, (the largest bank failure since Washington Mutual in 2008), can be attributed to decisions made several years earlier, such as heavy investments in US government bonds during an unstable interest rate environment. It is important to note that the current banking issues leading to SVB's collapse are short-term liquidity issues rather than fundamental asset problems like those experienced during the 2008 financial crisis.  

The impact of SVB's collapse on the housing market includes a decrease in available credit, making it harder for buyers to obtain mortgages. This decrease in demand can lead to lower housing prices. Additionally, there may be an increase in foreclosures as the collapsed bank is forced to foreclose on properties held as collateral, further affecting housing prices. 

The overall health of the US economy can be impacted by a bank collapse, making it more difficult for potential homebuyers to secure financing and a decreased demand for housing. 

On a positive note, improved mortgage rates resulting from SVB's collapse could encourage homeowners to list their properties, replenishing the supply for the next generation of buyers and potentially increasing home sales. However, the collapse of SVB is still significant and can have far-reaching consequences for the housing market and the tech industry. 

Another notable example is the failure of First Republic Bank, April 13, 2023 - the second-largest bank failure in the country, which led to JP Morgan Chase acquiring its assets instead of a federal bailout. This acquisition has heightened concerns about the stability of the banking industry, especially as it marks the third bank failure in two months. The resolution of First Republic Bank followed a competitive bidding process was aimed to minimize costs to the Deposit Insurance Fund. The estimated cost is to be around $13 billion, but the final cost will be determined upon the termination of the receivership. 

These bank failures highlight the challenges faced by some financial institutions and raise concerns about the stability of the banking industry. ¹  

Navigating the evolving North American real estate market  

Navigating the evolving North American real estate market requires adaptability and an understanding of its dynamics. Despite the challenges posed by factors such as fluctuating mortgage rates, supply-demand imbalances, and shifting buyer preferences, this market presents opportunities for proactive real estate agents.  

While existing-home sales dropped in April this year, there are some positive indicators such as a faster pace of home sales, a slight increase in first-time buyers and all-cash buyers, and a steady presence of investors. ² 

• In April, there was a 3.4% decrease in existing-home sales, indicating a decline in the housing market. Median prices have also experienced a slight decline of 1.7% compared to the previous year, with the current median price standing at $388,000, down from $395,500.

• The average days on the market have reduced to 22, indicating a faster pace of home sales compared to the previous figure of 29 days. This suggests that homes are selling more quickly.

• First-time buyers have slightly increased their presence in the market, accounting for 29% of all home sales, which is a small rise from the previous figure of 28%. Similarly, all-cash buyers have seen a marginal increase, comprising 28% of the market compared to the previous figure of 27%.

• Despite the overall slump in sales, the investor share remains steady at 17%. This suggests that investors are maintaining their position in the market, showing confidence in the long-term prospects of real estate. 

Experts are offering a variety of predictions, but there is a consensus that the current cooling effect is leading to stabilized or even declining home prices in certain regions. Embracing this market phase with optimism, agents can leverage lower demand to help buyers secure potentially more affordable properties, take advantage of increased inventory, and encounter reduced competition. By staying informed and proactive, agents can thrive in this evolving landscape and guide their clients towards successful transactions. 

Housing sales 

The rise in housing prices together with stagnant wages have made it difficult for many individuals and families to find affordable housing. Access to affordable housing is expected to continue being a challenge in 2023. 

The total number of completed transactions, including single-family homes, townhomes, condos, and co-ops, declined by 3.4% from March to a seasonally adjusted annual rate of 4.28 million in April. Compared to April 2022, sales slumped by 23.2% (down from 5.57 million). 

Distressed sales, including foreclosures and short sales, remained unchanged at 1% of sales in April. The average 30-year fixed-rate mortgage was 6.35% as of May 11, down slightly from the previous week but up from 5.30% one year ago. 

In terms of specific property types, single-family home sales decreased by 3.5% from March to a seasonally adjusted annual rate of 3.85 million in April, with a median price of $393,300, down 2.1% from April 2022. Existing condominium and co-op sales declined by 2.3% from March to an annual rate of 430,000 units, with a median price of $348,000, showing a 0.7% increase compared to the previous year. 

New home sales  

The New Home Sales indicator tracks the sale of newly constructed residences and is considered a lagging signal of real estate market demand. The United States Census Bureau provides seasonally figures for new home sales, where in April 2023, new home sales exceeded expectations, with a 4.1% increase compared to March and an 11.8% increase from the previous year.  

This surge can be attributed to factors such as low inventory in the existing homes market, favorable mortgage rates, a resilient job market, and demographic drivers like first-time homebuyers. The Federal Reserve's efforts to manage inflation have had some impact on the housing market, but a housing market crash is unlikely due to high home values and a shortage of pre-owned properties. ³ 

Mortgage rates  

Mortgage rates are subject to fluctuation due to factors such as inflation and the actions of the Federal Reserve. Prospective homebuyers should be prepared to take advantage of any dip in rates, but it is important to have a property in mind that fits within their budget. 

Experts have varying predictions for mortgage rates in 2023. The National Association of Realtors (NAR) anticipates that rates may stabilize below 6%, while the Mortgage Bankers Association (MBA) expects rates to end the year at 5.2%. The fight over raising the debt ceiling is expected to cause rate volatility, so borrowers should be aware of potential fluctuations. Some advice you can give to your clients is that it is not advisable to wait for rates to decrease further, as they may start increasing again soon. 

Overall, the consensus among experts is that the housing market will experience a slowdown in price growth compared to previous years. However, the severity of the decline or the extent of price increases will vary depending on factors such as location, economic conditions, and the supply-demand balance in each market.

Some good news for homebuyers in 2023 

Although there are certain economic indicators that may have a cooling effect on the housing market, it is improbable that they will lead to a complete crash. However, this does not imply that buyers will have no opportunities whatsoever in 2023. The housing market is expected to be more favorable for homebuyers, providing some good news amidst uncertainty. Here are some positive trends and factors to consider:

Lower prices: With higher interest rates dampening demand, there will be fewer buyers in the market, leading to lower prices. Home prices have already started to drop, and some research and investment firms predict further declines of 8% to 10%, or even up to 20%. 

Increased inventory: Low inventory has been a challenge in recent years, but there are indications that inventory is rising. Over 50% of agents surveyed report that inventory is increasing in their area, providing more options for homebuyers. 

A more balanced market: Higher inventory and slower price growth contribute to a more balanced housing market. Sellers are no longer expecting multiple offers significantly above the list price, creating a more stable environment for buyers. 

Fewer bidding wars: Bidding wars have cooled down, according to a large majority of agents surveyed. While multiple offers can still occur, the frenzy seen in previous years is diminishing. 

Reduced competition from cash offers: Cash offers, which were favored by sellers due to their quick closing and lack of mortgage appraisal concerns, are also on the decline. This reduces competition for buyers who require mortgage financing. 

Reduced contingency risk: Buyers are now less likely to waive contingencies, such as home inspections or appraisals, to win against multiple offers. This provides more protection for buyers, especially first-time homebuyers. 

While there is no guarantee, experts and analysts suggest that the Federal Reserve may lower interest rates later in 2023, which could further benefit homebuyers. 

Location prices for top American cities 

Here is a summary of the regional data for existing-home sales: 

• The Northeast declined by 1.9% from March to an annual rate of 510,000 in April, with a median price of $422,700, up 2.8% from the previous year.  

• Midwest sales decreased by 1.9% to an annual rate of 1.02 million, with a median price of $287,300, up 1.8% from April 2022.  

• The South region saw a 3.4% decrease in sales to an annual rate of 1.98 million, with a median price of $357,900, down 0.6% from April 2022. 

• In the West, sales slipped by 6.1% to an annual rate of 770,000, with a median price of $578,200, down 8.0% from April 2022. ²  

Here are some interesting trends about home prices in top cities in United States, that give agents insight about price trends, using the location price feature. (Properstar, June 2023) 

• Miami, Florida:  The median price for a 4 bedroom home is $1,393,443. 

• Los Angeles, California:  The median priced for a 4 bedroom home in LA is $1,791,699. 

• New York City, New York:  Median price of homes in New York is $1,474,105 - $1,086,393

• Honolulu, Hawaii:  The median price for a 4 bedroom home on the island is $2,252,887

Visit Properstar and try if for yourself to find out more about prices in a location of your choice!  

Summary  

The collapse of SVB has implications for the housing market, including changes in mortgage rates, difficulty in securing financing, potential decreases in housing prices, and an impact on the tech industry. While lower mortgage rates may provide relief for homebuyers, the long-term effects on the housing market remain uncertain, and broader economic factors can influence the market's recovery.

It is crucial for both agents and their clients to stay vigilant, monitor mortgage rates, and seek local insights to effectively navigate the ever-changing landscape of the North American real estate market. Mortgage rates are likely to fluctuate based on inflation and the Federal Reserve's actions. Prospective homebuyers should stay alert for favorable changes in rates, but it's important to have a property in mind that fits their budget. Keeping track of the Federal Reserve's decisions will help gauge the direction of mortgage rates in the market.

The US housing market in the last half of 2023 is expected to offer a more normal buying experience, with lower prices, increased inventory, reduced bidding wars, and a market shift that favors buyers. Patience is advised, as opportunities are expected to arise, and knowledgeable agents can help identify the right properties and programs that fit their clients’ individual needs. 

Sources:  

1) www.fdic.gov 

2) National Association of Realtors (NAR) 

3) U.S. Census Bureau 

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