U.S. State of the Housing Market, May Recap

Atlanta, GA | Ibuki Tsubo

Written by Breck Hapner

Based on the new June 1st housing trends report for the week ending May 27th from realtor.com, the U.S. housing market remained sluggish. Price growth increased less than one percent compared to the same period in 2022, with high housing costs and limited inventory impacting potential buyers, inciting bidding wars for new listings.

Other findings from the realtor.com analysis blame housing market pressures on the rise of mortgage rates to over seven percent and a 10 percent increase in the median sold price since February this year. Homebuyers are now facing an intense housing affordability hurdle resulting in a decrease in demand, while homeowners are reluctant to sell due to the fact that they want to retain their locked-in and refreshingly low mortgage rates. 

According to the realtor.com report, “many would-be homebuyers are compelled to postpone their purchasing plans due to high down payments and elevated mortgage rates.”

How Did We Get Here?

If this is an indication of the current market, what kind of journey has the U.S. housing market taken from January through May 2023?

Haven presented some questions about the current state of the housing market to Colorado realtor Landon Pasley, who dived deeply into how fundamental trends and consequences have affected real estate. 

“As the year 2023 commenced, initial predictions painted a rather bleak picture. Headlines filled the news, proclaiming an impending market decline, varying in severity depending on the source. It seemed almost inevitable, as if the signs were glaringly obvious,” Pasley said. “Interest rates had already doubled from their remarkably low levels during the midst of the pandemic, and influential real estate news networks foresaw a decrease in property values. Redfin projected a nationwide drop of four percent, while the National Association of Realtors (NAR), though predicting minimal price falls, acknowledged that prices would certainly not see an increase. All agreed on one thing: the trend was pointing downwards.”

When asked if the reality was that many regions of the nation experienced dramatic declines, Pasley confirmed that the market “witnessed a common decrease of around four to six percent. Denver, for instance, observed a year-over-year decrease of seven percent in the average sold price of all single-family homes from April 2022 to April 2023. It’s as if the overall market has returned from a luxurious five-star resort vacation and is now readjusting to everyday life. We’ve bid farewell to the era of ultra-low 2.9 percent interest rates and overwhelming demand, realizing these are now things of the past.”

Honolulu, HI | Zetong Li

What Does the Realtor.com Data Reveal?

How does all this tie in with current statistics? Let’s take a closer look at the realtor.com report spreadsheet data (on the landing page, click on the “View U.S. Data” link to download the spreadsheet data).

- Asking Prices Drooping

According to the realtor.com data, asking prices only increased 0.8 percent for the week ending May 27th. Still, this is a very slight uptick from the previous week’s gain of 0.7 percent, resulting in the small 0.1 percent increase. It will be interesting to see what happens in the weeks ahead regarding the slight gains in asking prices because there is a small number of houses for sale, down by about 20 percent compared to the same time frame in 2022. Because inventory levels are not escalating like they did at this time back in 2022, asking prices have remained fairly flat over the past few weeks.

Historically speaking, are there still specific regions or cities experiencing market growth, and what factors are driving those trends?

“Certain regions of the country are currently experiencing upswings in housing prices, population, and overall economic prosperity. These areas, characterized by affordability, diverse job markets, and lower initial home prices, have witnessed growth throughout this year,” Pasley said. “States such as Georgia, Texas, Florida, and North Carolina stand out as prime examples of this trend. On the other hand, higher-priced housing markets are facing the brunt of the challenges. During times of economic hardship, individuals tend to gravitate towards more affordable options, prompting a surge in demand for these thriving regions. Conversely, larger and pricier cities may have to await a new catalyst such as lower interest rates or an influx of job opportunities to reignite rapid growth. All these factors affect asking prices.”

Examining the realtor.com data, the current changes in asking prices are drastically different. For example, in March 2023, asking prices increased 6.3 percent year-over-year (YOY) and now it is only a gain of 0.8 percent. Except for the previous week, this gain of 0.8 percent is actually the smallest YOY gain going back to April 2020, which was impacted more by COVID lockdowns than anything else. Looking at the same week in 2019, asking prices increased by 6.7 percent. So, in other words, compared to pre-pandemic levels, the current growth rate of less than one percent is obviously much lower than the 6.7 percent that we saw during the same week in 2019. Additionally, for 24 consecutive weeks, we have been seeing single-digit increases in asking prices YOY.

Portland, OR | Sean Oulashin

- Housing Inventory Diminishing

The realtor.com data shows that inventory levels only increased by 17.6 percent YOY, which is considerably different compared to just one month ago. For example, in mid-April, there was a 49.1 percent increase YOY, and now it is a gain of less than 20 percent. This gain of 17.6 percent is actually the smallest increase going back to June 2022. 

“The persistently low inventory can be attributed to various factors. In a less competitive market, sellers often choose to hold off on listing their homes until competition increases. Additionally, many homeowners opt not to sell due to the same reason that potential buyers are hesitant to make a purchase: the presence of high interest rates,” Pasley said. “Selling would entail buying a new home and relinquishing their current low three percent interest rate in favor of a significantly higher 6.5 percent rate. Therefore, it usually takes significant pressure, such as a job change or major family event, to spur new listings.”

The realtor.com data reveals that inventory levels have been mostly on a downward trend since early February this year due to a lack of new listings. In other words, inventory is at historically low levels because of a lack of new supply due to rising interest rates, and new listings have been falling every single week so far this year. At the same time period last year, inventory was very high, and compared to January 1st this year, inventory is down.

Housing inventory in the U.S. rose by only 18 percent YOY last week, according to realtor.com, and has been on a downward trend since November 2022. Because new listings have been declining by double digits for 41 out of the last 44 weeks, inventory is staying below pre-COVID levels, even though inventory is much higher now compared to 2021–2022. There are 54 percent fewer homes for sale now compared to the same week in 2019.

“Despite the ongoing low inventory, there is a prevailing sense of caution among consumers, resulting in reduced overall demand. It is my belief that in many markets, the primary reason for this diminished demand lies in the elevated interest rates. Once those rates begin to decline again, I anticipate a surge in activity, with numerous eager buyers waiting on the sidelines, ready to make a move,” Pasley said. “In Denver, specifically, I expect my phone to start ringing incessantly as soon as interest rates become more favorable. Until then, competition will remain relatively subdued in all but the most highly sought-after neighborhoods that I serve, and it seems that other realtors share a similar sentiment.”

Salt Lake City, UT | Brent Pace

- New Listings Dropping

According to the realtor.com report data, last week, new listings decreased by 19.5 percent YOY and have been decreasing by double digits for 41 out of the past 44 weeks. As pointed out, the lack of new supply in the market is causing the slowdown. The data shows 47 consecutive weeks in which new listings are down compared to 12 months ago, dating back to early July 2022. This is causing inventory levels to remain at historically low levels, especially compared to 2018 and 2019. 

How Fast or How Slow are Houses Selling?

The realtor.com data reveals that houses have been taking longer to sell for 43 consecutive weeks compared to the same time frame in 2022. Last week it took 13 days longer to sell a house compared to the end of May 2022. 

Price Reductions Declining

According to the realtor.com data, the number of price reductions YOY declined immensely. For example, last week signified a gain of 3.7 percent compared to February 4th, 2023, which had a gain of 170 percent (compared to the same time frame in 2022). One month ago, a gain of 61.3 percent was exhibited, and now it is less than four percent; this is a huge drop in the number of price reductions, which have decreased for 15 out of the past 16 weeks. So, price drops are shrinking compared to last year due to decreasing inventory levels, leading to fewer options for buyers, which results in bidding wars in some markets. 

Phoenix, AZ | Chris Tingom

Mortgage Rates

It seems mortgage rates have become the primary focus during the very intricate home buying and selling process, affecting every other interconnected aspect of the real estate market. To enter into the market, it is important to understand how economic factors affect rates and, thereby, your decisions when deciding to buy or sell. How does it work?

“The direction of mortgage rates is influenced by various factors, with two of the most significant being the federal funds rate and inflation. The federal funds rate is affected by the buying or selling of U.S. securities by the Federal Reserve, which either injects more money or reduces it within banking institutions,” Pasley said. “When banks have more funds, they tend to offer loans at lower interest rates, ultimately leading to decreased mortgage rates. Conversely, when banks have fewer funds, mortgage rates are expected to rise. Inflation also plays a role in mortgage rates, as lenders typically charge higher interest to compensate for the impact of inflation on their profits.”

That being said, average 30-year fixed mortgage rates are currently 6.94 percent for people with exceptional credit, according to the Mortgage News Daily on June 12th. 

“Presently, the federal funds rate has increased, along with inflation, consequently causing mortgage rates to rise as well. Higher interest rates limit the amount of money individuals can borrow while maintaining the same monthly payment. This pushed many prospective buyers to consider purchasing more affordable homes, paying higher monthly amounts for the homes they desire, or waiting for interest rates to decrease,” Pasley said. “This has also caused sellers to be more realistic in their pricing strategy and lower the listing price to entice buyers. Despite these changes, savvy buyers recognize that they can still secure advantageous deals and negotiate more concessions from sellers than before. They are also aware that interest rates are not fixed and will eventually decrease, providing an opportunity to refinance and obtain a more comfortable payment plan.”

The current 6.94 percent rate is down from the 7.14 percent that we saw last week, which was, at that time, nearly a seven-month high. However, even though rates have been coming down ever since then, they are still significantly up compared to one year ago when average rates were at 5.5 percent. Average 30-year rates are 1.38 percentage points higher than 12 months ago.

“While many buyers aspire to obtain both a good deal and a low interest rate, it is important to acknowledge that these two factors often do not align,” Pasley said. “A good deal frequently accompanies higher rates, at least until the rates experience a decline.”

San Diego, CA | Clayton Cardinalli

The Perfect Storm?

There are many challenges presently raining down on the U.S. housing market beyond elevated rates: record low housing affordability, low inventory levels, rampant inflation, and worries over a possible recession creating much uncertainty, lowering consumer confidence. 

As the recent realtor.com data shows, signs of home buyer demand have been all over the place this year due to the volatility of rates increasing one week and falling the next. With the U.S. economy still struggling and unemployment rates rising, buyers and sellers alike are playing a waiting game whenever any type of investment is involved. If homeowners continue to decide that now is not a good time to sell their houses, that will have a direct impact on real estate, as the direction of the U.S. housing market now depends on how rates and inventory intermingle.

“We find ourselves in a new landscape where interest rates are higher. While inventory remains limited, there is now a smaller pool of buyers in search of properties due to these elevated rates,” Pasley said. “We’re transitioning to a phase where people are adapting to the realities of the present to stay afloat. Seize this moment and recognize that real estate stands as one of the safest long-term investments. In matters of importance, it’s crucial to adopt a mindset of either do it right or do not do it at all.”

Colorado Springs, CO | Russell Smith

In our June recap, Haven will take a further look at the numbers: how the current U.S. housing market is reacting to prevailing economic factors influencing real estate.