Summer is typically when the housing market heats up. In a normal year, there are more homes sold in the summer, and homes tend to sell faster. Prices peak during the summer months and new listings increase. Over the last few years, however, the housing market has been anything but typical, so what will summer 2023 look like?
Forecasting the housing market is challenging in these tumultuous times, but here are three things that will drive the housing market climate this summer:
- Higher mortgage rates could lead to lower home prices. This year, homebuyers have been watching mortgage rates closely, and with good reason. A half percentage point increase in mortgage rates increases the monthly payment on a typical home by more than $100.
The Federal Reserve’s actions have a big impact on mortgage rates, and the Fed has indicated that they are committed to keeping interest rates elevated until inflation comes down. That could mean higher mortgage rates this summer, which will further erode buyers’ purchasing power and bring home prices down.
- Labor market conditions are critical to local housing demand. The strength of the labor market and the health of the overall economy are important factors that will influence the performance of the housing market this summer. When the unemployment rate is low and employers are adding jobs, people feel more confident about their financial situations and are more likely to make big decisions, like buying or selling a home.
The U.S. labor market has proven to be surprisingly resilient in the wake of the Fed’s rapid interest rate increases. There was always a risk that raising rates would lead to a weaker labor market, but that has not been the case, at least as of March. While announcements of high-profile layoffs have created anxieties about the economy, these layoffs have been highly concentrated, both within industries and geography. This pattern suggests it is more important than ever to watch local labor market conditions to gauge how busy your local housing market will be this summer.
- Low supply keeps the pressure on. New listings usually increase during the summer, but this year, inventory could stay unseasonably low. The supply of homes available for sale is up from where it was a year ago, but it is still low by historical standards, and new listing activity in 2023 has been at the lowest levels in more than a decade. Limited inventory will keep conditions competitive in many local markets this summer.
Homeowners who bought at rock-bottom mortgage rates during the pandemic—or refinanced at those sub-3% rates—have little incentive to sell since it will mean rolling into a mortgage that carries a rate that is more than double their current rate.
Expect the housing market to heat up this summer, but it won’t be a scorcher, as there are competing factors pulling the market in different directions. On the one hand, pent-up demand and low inventory will result in competitive housing markets. On the other hand, higher mortgage rates and economic uncertainty will subdue market activity. In all, this summer could be the season of a return to a more balanced housing market.
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