The July 2023 housing market wasn’t as hot as expected. In fact, experts say housing market activity has been mild. A report from Redfin found that only 1% of homes changed hands so far this year. This is the lowest share in at least a decade!
Sellers in the DC, Maryland, and Northern Virginia markets are still seeing multiple offers, but the housing supply is still extremely low. Interest rates dipped slightly at the beginning of July, but they’re back up again.
Rates could trend higher, but experts say they could come down. After pausing interest rate hikes in June, the Federal Reserve met in July and raised its funds by a quarter of a percentage point to a target range of 5.25% to 5.5%. Fed rate hikes indirectly affect long-term home loans, so we could see an increase in mortgage interest rates.
Read on to discover what you need to know about the current housing market!
We’re still experiencing a seller’s market as limited inventory and higher mortgage rates have pushed many prospective buyers to the sidelines. Affordability challenges remain the biggest obstacle, but recent declines in home prices and a jump in permits for future new home construction are giving consumers some hope.
The national median existing-home price for all housing types hit $410,200 in June, down 0.9% from last year. However, after a drop last month, mortgage interest rates have inched back up to slightly under 7%. This translates to a monthly mortgage payment of $2,172 for the typical single-family home and $1,888 for a typical condo.
Housing inventory is at its lowest level in 41 years, and it will take 3.1 months to move the current inventory level at the current sales pace. This is well below the desired pace of 6 months, which is considered a neutral market. Low supply continues to trigger bidding wars, especially in high-demand areas like DC, Maryland, and Northern Virginia.
According to recent data from the U.S. Census Bureau, U.S. single-family housing starts fell by 7% in June; however, single-family building permits increased by 2.2% — a 12-month high, Reuters reported.
The interest is there, but shortages of materials and higher borrowing costs have hampered construction efforts. Housing completions and the supply of single-family homes under construction were also at the lowest level in two years.
“More effort should be directed toward raising the housing supply by focusing on worker training in home building and lessening barriers to construction so that once interest rates decline, there will not be a resurgence of rapid home price growth,” said Lawrence Yun, chief economist at the National Association of Realtors (NAR).
Interest rates nearly doubled in 2022 after hitting their lowest level in 2021. According to Freddie Mac, mortgage rates increased slightly this month, reaching 6.81% on a 30-year fixed-rate mortgage by the end of July. This is up from 6.71% for the last week of June.
Jessica Lautz, deputy chief economist and VP of research at NAR, says higher rates impact who will want to sell their home and greatly impacts first-time buyers, minority buyers, and single buyers struggling to enter the market.
A new survey released by Zillow found that 80% of mortgage holders have a rate of less than 5%, and homeowners are nearly twice as likely to sell if their rate is 5% or under. Lautz noted while new inventory is needed, lower rates would bring current owners out of homes they may have outgrown and into the market.
"We expect mortgage rates may notch down slightly as inflation comes under control, but they are unlikely to return to 5% in the near future," said Orphe Divounguy, a senior economist at Zillow Home Loans. "Over time, homeowners will likely accept higher rates as the new normal, but until then, the market could remain challenging for home shoppers, who will see fewer options and higher prices."
Currently, housing market activity is weak due to rising mortgage rates, high home prices, and a limited inventory. The Federal Reserve strongly hinted that funds would be raised again in September. This could push the rate up as high as 5.6% by the end of 2023, reported Forbes. The Fed is expected to raise rates at least once more before the end of 2023.
Forbes says it's difficult to imagine housing market conditions improving greatly anytime soon. Joel Kan, VP and deputy chief economist at the Mortgage Bankers Association explained that while purchase applications increased for the third consecutive week to their highest level since early May, existing home sales continue to be held back by a lack of inventory as sellers hold onto lower mortgage rates.
“If current economic conditions persist, with elevated mortgage rates and home prices amid scarce inventory, the market is likely in for a long, slow climb and a few bumps along the way,” said Danielle Hale, chief economist at Realtor.com, in an emailed statement to Forbes.
The likelihood of a housing market crash in 2023 is low.
Experts still predict that the housing market is more likely to correct itself rather than crash, and the latest S&P CoreLogic Case-Shiller Home Price Index agrees with this sentiment. Data suggests that the housing market has experienced a correction, and it's now on its way to recovery.
Despite price decreases, experts note that homeowners are still in a better position than those coming out of the 2008 financial crisis, with most borrowers having positive home equity. Nicole Bachaud, an economist at Zillow, told Forbes that homeowner equity is at its highest level in decades.
Believe it or not, there’s never a perfect time to buy or sell a home. Whether or not you should buy or sell depends on your situation and where you are in life.
If you’re thinking of buying, be prepared to face some stiff competition. Buyers are waiting on the sidelines and jumping in when the right home hits the market and when there’s a drop in mortgage rates.
Because we’re still in a seller’s market, sellers still have the upper hand. Home prices are beginning to weaken, but sellers can still expect bids over the asking price in competitive markets.
Also, if interest rates drop, you can always refinance to that lower rate!
Whether you're buying or selling, make sure you work with an experienced local agent who can help you navigate the home buying or selling process.
Don’t let the high rates and low inventory discourage you if you’re ready to make a move!
Experts predict that we’re safe from the housing market crash we saw over a decade ago. And while interest rates likely won’t go as low as they did during the pandemic, buyers and sellers will still benefit from expert real estate leadership.
Reach out today to work with a top agent in the DMV housing market!
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