The total count of for-sale homes is likely to be the lowest since 2012, according to Realtor.com’s 2023 Forecast Update, released Thursday.
Home sales are expected to decline 15.8% in 2023 for a total of about 4.2 million sales for the year.
The forecast arrives on the heels of a Redfin report released Wednesday that the number of homes for sale in the U.S. in May fell 7.1% year over year to a seasonally adjusted 1.4 million, the lowest level in its records, which date back to 2012.
The 1.4 million homes for sale was down from 2.2 million in May 2019, before the pandemic.
“High inflation and the Fed’s actions to curb it,” says Danielle Hale, Realtor.com’s chief economist, “have had a significant impact on the housing market this year. And while inflation has begun to ease, the sustained spike in mortgage rates was enough to stifle the housing market after several years of low rates and strong activity. The housing market has really seen a double whammy in 2023, with a retrenchment in the number of homes for sale coupled with still-high prices and mortgage rates that have kept both first-time and repeat buyers on the sidelines.”
Home prices easing slightly has allowed affordability to improve, but there’s still a long way to go the company says. Cooling inflation should start to have an impact on mortgage rates, and Realtor.com’s projection that rates will average 6.4% through the rest of the year is a full percentage point lower than it initially forecasted in November.
“The expectation is that mortgage rates will also be slightly lower than originally anticipated, but not low enough to bring down buying costs until the end of the year,” the company says.
Though the Federal Reserve's rate hikes do not directly affect mortgage rates, Fed Chairman Jerome Powell’s warning to Congress this week that future interest rate increases will likely be necessary means mortgage rates may still rise, assuming the higher costs of lending will drive banks to push these costs onto borrowers.
For the year as a whole, Realtor.com predicts that the cost of a mortgage is expected to be up 10.5% compared to 2022. But, affordability constraints may ease slightly if home prices decline the 0.6% that the company expects, as low affordability undercuts demand. The inventory of homes for sale has not met the company’s exceedingly rosy projections from November (+22%), and the expectation now is for inventory levels to slip (-0.5%) for the year.
“The vast majority of homeowners locked in low rates during the pandemic and aren’t particularly excited to give them up in order to buy a new home, unless they really need to move for personal reasons,” Hale said. According to a Redfin report, more than 80% of mortgage holders are the proud owner of a mortgage rate below 5%, and nearly a quarter of mortgage holders below 3%.
However, with housing starts surging nearly 22% in May, there’s a smidge of optimism in Realtor.com’s forecast for the ranks of renters sidelined by persistent “lock-in effects” and mortgage rates projected to remain above 6% through the end of the year – increased levels of new multi-family construction and decreased competition for new rental units are expected to cool rental prices by 0.9% year over year. Nevertheless, rents still sit at historically high levels, with the average rent about $350 more than it was pre-pandemic.
