In both the resale and newly constructed housing markets, Home sales plunged over 25% in 2022 after nearly two years of frenzied pandemic growth. Higher borrowing costs coupled with affordability declines continue presenting deep challenges in early 2023 despite median sale prices moderating month-over-month. Real estate leaders expect the market rebalancing to continue well into 2024.

After hitting a cyclical peak in August 2022, home purchases from Sacramento suburbs to New Jersey suburbs retracted sharply based on several key indicators:

In this article, we’ll analyze factors driving the cooling market through perspectives from economists and industry experts. For potential home buyers and sellers, we’ll also explore nuances across different cities to understand where smooth sales still occur alongside key future indicators predicting local market directionality.

Surging Mortgage Rates Reduce Home Affordability

While job growth and wage bumps sustained other consumer sectors in 2022, the housing industry bore the brunt of cascading effects from the Federal Reserve’s inflation reduction efforts as higher borrowing costs priced many hopeful buyers out. Lawrence Yun, chief economist for the National Association of Realtors (NAR) notes:

“Affordability has been crushed by the doubling of mortgage rates in the past year after the steady upswing in rates from 3% just two years ago.”

Average 30-year fixed mortgage rates topping 8% in October paired with median single-family home prices of $391,800 made purchases unrealistic for mainstream Americans vying with investors flush with cash. While competitive all-cash offers decreased from 25% of transactions in early 2022 to 16% by October 2023, higher monthly costs still constrained many prospective buyers even as home values themselves leveled off.

A maintenance worker sweeps the street in front of a row of new homes in Fairfax Virginia on August 22 2023 Sales of homes in the United States ticked down in July according to industry data released on August 22 2023 as elevated mortgage rates and limited housing supply held buyers back The housing market in the worlds biggest economy has been reeling as interest rates climbed making home owners reluctant to put their properties up for sale having earlier locked in lower rates on their mortgages Photo by Andrew Caballero Reynolds AFP Photo by ANDREW CABALLERO REYNOLDSAFP via Getty Images

Average 30-year fixed mortgage rates climbed over 7% in late 2022 before moderating slightly. Credit: Federal Reserve

These affordability declines manifest clearly in seasonally adjusted figures from September 2022 to October 2023 showing 28% fewer existing home sales and 37% reduction in newly built home purchases not offset by the 4% price reduction over that period.

NAR’s Yun projects sustained declines through winter 2023 if rates hold above 6%, requiring strong price cuts from sellers to meet lower qualified buyer budgets. On the construction side, completions lag 9 months behind permits issued – indicating new supply will remain constrained through 2023 before rebounding, especially across the West and South.

Uneven Regional Impacts Across State Housing Markets

Behind the negative national housing headlines, data shows considerable variance across American cities and states. While 94% of 183 tracked metro regions registered sale declines in October 2023, certain areas continue displaying resilience.

Thomas LaSalvia, an economist with online brokerage Redfin, notes “the housing market is at its worst shape since the first months of the pandemic in early 2020, though it remains quite strong in some parts of the country.”

Let’s examine areas bucking cooling trends alongside vulnerable regions feeling substantial slowdowns.

Hot Housing Markets

CityStateSale Change October 2022 vs 2023Key Driver
AustinTexas+1.4%Ongoing tech jobs stimulus
TampaFlorida-2.8%Retirement community demand
CharlotteNorth Carolina-3.2%Relative affordability

Cooling Markets

CityStateSale Change October 2022 vs 2023Key Driver
Las VegasNevada-51%Tourism decline and oversupply
PhoenixArizona-49.1%Investor saturation
SacramentoCalifornia-46.3%Spiking interest rates

The mixed picture emphasizes the importance of evaluating conditions locally versus generalizing regional slowing as universal. Conservative buying still occurs in smaller towns and cities where buildable land enables construction responding to housing needs among balanced buyer demographics.

Future Homebuying Hinges on Mortgage Rate Movement

Housing analysts agree unanimously that mortgage rate trajectory determines market directionality more than any other variable in 2023. Pending a recession, continued jobs growth sustains fundamental demand while remote work trends support mobility to smaller metro regions offering relative affordability.

Navy Federal Credit Union economist Robert Frick observes:

“Though buyer hunger still exists across generations, higher costs of capital alongside middling inventory Dynamite homes available relative to purchasers ready to commit at current rates.”

With average 30-year fixes declining to 6.5% to start 2023, analysts predict corresponding upticks in selling activity by spring. But sustained inflation control remains critical – each percentage rise in Federal Reserve rates depresses housing markets severely.

Individual buyers must also consider personal trade-offs balancing mobility goals with changing expense structures in current or future locations. Though general guidance sees 2024 stabilizing, significant local variability means bookmarking critical indicators like home pricing indexes, permit approval trends, and mortgage affordability thresholds for your target metro area.

Combined with interest rate thresholds that sustain affordable monthly payments, monitoring these indicators promises the best intelligence predicting when smooth, negotiated home purchases return.

Staying data-informed ensures properly calibrating expectations around homeownership timelines and opportunities in your preferred destination. Paired with sound financial planning addressing higher borrowing costs, buyers and sellers can pursue savvy transactions despite broader housing market uncertainty.

Key Takeaways From The 2023 Housing Market Analysis

While the swift 2021-early 2022 rebound gets remembered as an outlier event induced by unique pandemic conditions, current data shows mixed regional results that reward informed buying. Critical 2023 housing market insights include:

  • Average 30-year mortgage rates above 6% continue challenging affordability, requiring sellers to meet lower qualified buyer budgets through price cuts
  • Targeted metro analysis is essential as smaller cities display sales resilience, while overheated regions witness steeper declines from prior highs
  • Mortgage rate and construction supply trajectories dictate market forecasting more than lagging indicators like home values alone
  • Patience and data-driven insight enables informed moves when right local conditions align, despite negative national headlines

Continue Monitoring Key Housing Indicators in Your Regional Target

With the national market likely to remain in flux through late 2023, sustain an open-minded, data-driven approach evaluating affordability factors and sales volumes in your destination metro. While broad cooling persists, properly weighing regional indicators promises finding local opportunities outpacing general housing segment uncertainty.

Hopefully this analysis provides a balanced, nuanced perspective examining recent declines while equipping readers to track leading markers dictating housing market directionality. Rather than sitting resignedly until recovery, proactive monitoring allows responding quickly when aligned conditions and attractive listings appear locally.