US Home Sales Hit 28-Year Low in 2023
The US housing market experienced its worst year since 1995, as high interest rates, low inventory, and rising prices deterred buyers and sellers alike. According to the National Association of Realtors (NAR), only 4.09 million existing homes were sold in 2023, an 18.7% decline from 2022. The median sale price also reached a new record of $389,800, a 1% increase from the previous year.
The main factor behind the slump was the sharp rise in mortgage rates, which made borrowing more expensive and reduced the affordability of homes. The Federal Reserve, the US central bank, started raising its benchmark interest rate in 2022 to combat inflation, which reached a 40-year high of 7% in November 2023. As a result, the average rate for a 30-year fixed mortgage soared from 3.11% in 2021 to 7.08% in 2023, the highest level since 1990.
This discouraged many potential buyers, especially first-time and low-income ones, from entering the market. It also dissuaded many existing homeowners, who had locked in lower rates in previous years, from selling and moving to a new home. This created a vicious cycle of low supply and high demand, which pushed prices up and further reduced affordability.
The NAR reported that the inventory of homes for sale dropped to a record low of 1.03 million units in December 2023, a 13.8% decrease from a year ago. This represented a 3.2-month supply at the current sales pace, well below the 6-month level that is considered a balanced market. The NAR also said that the typical home stayed on the market for only 17 days in December, down from 21 days a year ago.
The tight market conditions also created challenges for appraisals, inspections, and financing, which delayed or canceled some transactions. Moreover, some buyers faced difficulties in finding and securing homeowners insurance, especially in areas prone to natural disasters such as wildfires, floods, and hurricanes.
The NAR’s chief economist, Lawrence Yun, said that he expected the housing market to improve in 2024, as mortgage rates have fallen back to around 6.6% in January, and the Fed has signaled that it may cut rates later this year. He also said that the Biden administration’s infrastructure and social spending plans, which include funding for affordable housing, could boost the supply and the demand for homes.
However, he warned that the housing market still faced significant headwinds, such as the ongoing pandemic, the labor shortage, the supply chain disruptions, and the political uncertainty. He also said that the price increases were unsustainable, and that the country could face a widening gap between the haves and the have-nots.
He urged policymakers, builders, and lenders to work together to increase the availability and the accessibility of homes, especially for renters, minorities, and young people. He said that expanding homeownership was essential for the economic and social well-being of the nation.
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