It’s that time of year again. Homebuyers begin poring over listings with Instagrammable kitchens and shoring up their finances. Sellers slap on fresh coats of paint and make all of the repairs they had been meaning to do since they moved into their properties. And a real estate agent somewhere pops a tray of cookie dough into the oven before opening the doors to the open house.
Welcome to the spring housing market, 2023—and buckle up for one unlike any you’ve encountered before. After a high-stakes, boom-and-bust cycle that played out over the past year, buyers and sellers alike are now waiting to see if America’s real estate market awakens from its deep slumber and starts galloping again into the prime selling season.
Will sellers plant those familiar “For Sale” signs in their yards again in large numbers, and will buyers snatch up their properties despite a crushing lack of affordability? The answers could reverberate through the market for years to come.
The market had been on life support the past few months as high prices and rising mortgage interest rates had sidelined many would-be buyers. Sellers had little incentive to list when multiple-offer bidding wars gave way to necessary decreases in asking prices—especially when the next home they bought would have a higher mortgage rate. New listings dropped and the number of home sales cratered.
Buyers were frustrated, sellers felt trapped.
But then mortgage rates dipped to the low 6% range—and buyers jumped back in. Now, new listings are dwindling and rates are back up again, hitting 7.1% on Thursday afternoon before falling back down just below 7% on Friday for 30-year fixed-rate loans, according to Mortgage News Daily. That’s threatening what had been a promising prequel to the typically busy spring real estate market.
“The spring is likely to mark a turning point,” says Robert Dietz, chief economist of the National Association of Home Builders. “You’re at the low, but you can start to see better days ahead.”
How far ahead those better days are remains to be seen. The spring housing market is likely to be busier than the dead of winter, but real estate experts anticipate it will be slower than the wild frenzy the market experienced at the height of COVID-19 and in the more traditional, pre-pandemic years.
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“This is going to be a really bumpy road into the spring market,” says Lisa Sturtevant, chief economist of the Bright MLS, the multiple listing service covering the mid-Atlantic region. “[Mortgage] rates are incredibly important. … But the availability of homes for sale is going to be the main constraint.”
The number of homes for sale was up 67.8% year over year in February, according to Realtor.com® data. But buyers shouldn’t get too excited. Most of these homes have been sitting on the market for what might seem like an eternity, unable to attract buyers because they’re fixer-uppers, dated, overpriced, remotely located, or utterly lacking curb appeal.
Meanwhile, those unicorns in the housing market—the adorable, move-in ready homes in popular neighborhoods—continue to sell briskly, often for over the asking price.
“Desirable areas, good school districts, and good quality homes are still going to sell well and [still] face bidding wars,” says Ali Wolf, chief economist at the building consultancy Zonda. “But that’s not going to be the norm.”
So what will the norm in the housing market look like?
Buyers can expect a shortage of well-priced, turnkey homes—and plenty of competition for the few that go up for sale. Mortgage rates are anticipated to bounce around in the mid-6% to 7% range. And while home prices won’t shoot up again, even if they dip a little in certain markets, they are expected to remain well above pre-pandemic levels. That makes it even more expensive for buyers to buy.
Purchasing a home is now about 50% more expensive than it was a year ago for those who rely on a mortgage. (The calculation assumes buyers put 20% down on a home with the median list price in February compared with the same month a year ago. It also uses the most recent mortgage rates from Freddie Mac compared with a year earlier for 30-year fixed-rate loans.)
“The spring season, which is critical for the rest of the year, will be subpar,” says Realtor.com® Senior Economist George Ratiu. “Mortgage rates will continue to define the housing market.”
Unfortunately, many starry-eyed buyers entering the housing market won’t become new homeowners this spring. There simply aren’t enough homes for sale.
Homeowners who likely would have sold might not want to do so this spring. During the pandemic, they watched the cars line up down the block for their neighbors’ open houses and learned that the guy three houses down received 15 offers and sold his home for an unheard-of sum just a year ago. So they might not be willing to settle for any less—even if today’s buyers can’t afford the same price tags at higher mortgage rates. It might take them some time to accept the shift.
“Once the psychological adjustment completes, sellers will much more likely come to grips with the fact that the market is different,” says Ratiu.
In addition, many sellers are locked into mortgages with 3%, or lower, rates. If they trade up or down into new properties, many will need to get mortgages with higher rates, which will cost them dearly each month.
Still, it’s not all bad to be a seller—especially of a move-in ready home in a hot area.
“Sellers are able to consider more than one offer,” says Bright MLS’ Sturtevant. “That is a position that puts sellers still into the driver’s seat.”
Builders aren’t rushing in to save the day. Instead of ramping up construction to fill that need, builders are largely pulling back. Higher interest rates have made it more expensive to put up more homes—and have decimated the number of potential buyers who can afford new construction.
That means they’re expected to put up even fewer new homes this year, which will worsen the nation’s housing shortage.
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Buyers are reluctantly realizing that 2% and 3% mortgage rates are a thing of the past, and some are forging ahead anyway. Many expect rates will eventually drop a percentage point or two—and they’ll be ready to refinance their loans once they do.
“A lot of people deep down want to own a home,” says Zonda’s Wolf. “They’re saying, ‘How long do I put my life on hold?’”
Some economists believe mortgage rates will begin falling in the second half of the year once the Federal Reserve has inflation under control. (Mortgage rates have been rising as the Fed has been hiking its own rates. Once the Fed stops raising rates, mortgage rates are expected to dip.)
Mortgage lender Shmuel Shayowitz is seeing an uptick in buyers getting pre-approved for a loan as well as having their offers accepted.
“They’re definitely coming out more aggressively than late last year,” says Shayowitz, of Approved Funding in River Edge, NJ. “Most are coming in with the expectation that they’ll be able to refinance within 12 to 24 months.”
However, the number of buyers applying for mortgages was down nearly 44% in the week ending Feb. 24, according to the Mortgage Bankers Association. That put demand for mortgages at a 28-year low.
This can be a bit misleading, though, as the housing market was on a tear the past few years, so the drop isn’t compared with a normal year. And many economists believe home sales have already bottomed out, so the only direction they can go is up.
The big question on the minds of buyers and sellers is which direction home prices will go next.
They rose to unthinkable heights during the pandemic because there weren’t enough homes to go around and lower mortgage rates gave buyers more purchasing power. Low rates saved buyers big, as their monthly payments shrunk. So they were able to put that extra cash toward higher home prices.
Higher rates have upended that calculation.
Ratiu, of Realtor.com, believes home prices will flatten out or dip a little to make up for the higher mortgage rates. And that should bring in more buyers in the summer and fall.
“The fact that a large share of buyers simply cannot afford mortgage payments on homes at the current price means that home prices have to adjust,” he says.
Others believe the housing shortage will keep prices high and they could begin to tick back up again. The only consensus among real estate experts is that whether home prices will rise or fall will vary considerably from market to market. Markets that boomed during the pandemic (e.g., Boise, ID; Austin, TX; and Phoenix) might be more vulnerable to steeper corrections.
However, even if prices do come down a little, most of those savings will be erased by higher mortgage rates. And that assumes buyers are able to find homes for sale that meet their needs as the housing shortage drags on.
“It’s going to be a tough market for both buyers and sellers,” says Mark Zandi, chief economist at Moody’s Analytics.
Clare Trapasso is the executive news editor of Realtor.com where she writes and edits news and data stories. She previously wrote for a Financial Times publication, the New York Daily News, and the Associated Press. She also taught journalism courses at several New York City colleges. Email email@example.com or follow @claretrap on Twitter.
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