U.S. Home Sales Plunge to 30-Year Low in 2023 Amid Rising Mortgage Rates and Limited Inventory
In a surprising turn of events, sales of previously owned homes in the United States plummeted to a nearly 30-year low in 2023. This decline can be attributed to a combination of factors, including significantly higher mortgage rates, rising home prices, and a persistently low inventory of available homes. The National Association of Realtors (NAR) reported that existing home sales totaled 4.09 million last year, marking an 18.7% decline from the previous year. This represents the weakest year for home sales since 1995 and the largest annual decline since the housing slump of the late 2000s.
One of the primary drivers behind this decline is the sharp increase in mortgage rates. In 2022, mortgage rates began to rise and eventually more than doubled by the end of the year. This trend continued into 2023, with the average rate on a 30-year mortgage reaching 7.79% by late October, the highest level since late 2000. These higher borrowing costs significantly limited the buying power of potential homebuyers, exacerbating the impact of already soaring home prices.
The persistently high prices of homes have been a long-standing issue, making it increasingly difficult for many Americans to afford homeownership. In 2023, the median national home price edged up just under 1% to a record high of $389,800. Coupled with the limited inventory of homes for sale, this created a challenging environment for both buyers and sellers. Many potential homebuyers were unable to find suitable options within their budget, while homeowners were discouraged from selling due to the large gap between current mortgage rates and the rock-bottom rates they had locked in.
However, there is some hope on the horizon. Mortgage rates have been easing since November, following a pullback in the 10-year Treasury yield. Economists anticipate further rate declines this year, which could potentially boost demand heading into the spring homebuying season. The average rate on a 30-year home loan currently stands at 6.6%, still significantly higher than two years ago when it was 3.56%. Nonetheless, the decrease in rates may encourage more buyers to enter the market.
Despite the potential for a rebound, the shortage of homes for sale remains a significant challenge. At the end of December, there were just 1 million homes on the market, a 4.2% increase from the previous year but well below the historical average of about 2.25 million. This limited supply means that homebuyers are likely to face intense competition, driving up prices even further. Lisa Sturtevant, chief economist at Bright MLS, predicts that the demand-supply imbalance in the housing market will persist well into 2024.
In December, home sales declined further, with existing home sales falling 1% from November to a seasonally adjusted annual rate of 3.78 million. This represents the slowest sales pace since August 2010. Additionally, first-time homebuyers faced significant challenges in entering the housing market. They accounted for just 29% of all homes sold in December, down from 31% in November and December 2022. Historically, first-time buyers have made up 40% of sales.
The road ahead for the housing market remains uncertain. While easing mortgage rates offer some hope for a recovery, the persistent shortage of homes for sale and rising prices continue to pose significant obstacles. As we move further into 2024, it will be interesting to see how these factors evolve and whether they will ultimately shape the trajectory of the housing market.
