Recapping the resilience of the 2023 housing market

Despite unprecedented challenges, the housing market emerged as a resilient and surprising beacon of stability in 2023.

While supply constraints continued and the Federal Reserve’s interest hike lasted longer than expected, the sharp decline in home prices that many experts predicted didn’t happen, and mortgage delinquencies declined. The housing market not only defied predictions that it would crash, but also demonstrated remarkable strength and stability.

Home prices didn’t tank as predicted

One of the most notable surprises of the past year was the resilience of home prices. We anticipated home prices would remain strong due to the persistent lack of inventory, but many experts expected a sharp decline. Home prices held steady in most markets and, in some cases, even experienced appreciation.

The October Black Knight Mortgage Monitor Report revealed a “stronger-than-expected” annual home price appreciation (HPA) of 3.8 percent. This signifies a continuous three-month period of notable growth acceleration nationally, as HPA was up 2.4 percent in July.

Similarly, in August, the report showed the second consecutive month where the annual HPA exhibited an upward trend in all 50 of the largest U.S. markets.

Recent reports from the Federal Housing Finance Agency also show home prices increased 4.6 percent in July from last year.

Supply drought leaves no homes for sale

One of the persistent challenges facing the housing market is the shortage of available homes for sale. Demand remained strong in 2023, but the supply of homes for sale remained historically low.

This ongoing supply drought contributed to the stability of home prices, as competition among buyers for limited inventory kept prices from plummeting.

Supply constraints were exacerbated primarily by the lock-in effect — a phenomenon that makes homeowners feel “locked into” their homes due to low-rate mortgages, rising interest rates and rising home prices. This contributed to a reduced supply of homes for sale and, therefore, fewer transactions.

Other factors contributing to low inventory include supply chain disruptions and rising material costs that have lingered from the pandemic. As a result, builders struggled to keep up with demand, leading to a continued shortage of new housing units.

New home listings remained low, with 9.1 percent fewer newly listed homes compared to last year, according to Realtor.com. The 50 largest metro areas, as a whole, were also down 41.9 percent below pre-pandemic levels.

Source: Realtor.com September 2023 Monthly Housing Trend Report

Source: Mike DelPrete and National Association of Realtors

The Fed continued rate hikes longer than expected

As inflationary pressures persisted, the Fed continued the series of interest rate hikes longer and more aggressively than expected. The first hike started in March 2022 and has continued to tick up.

This was the quickest pace in the Fed’s history and translated to an increase in 30-year fixed mortgage rates over 7 percent in October of 2023 — up from around 2.8 percent in 2020 in the same month.

Source: Freddie Mac

Mortgage delinquencies declined

One of the fears that loomed large during the pandemic was the potential for a surge in mortgage delinquencies — when a homeowner is late on a required mortgage payment — and foreclosures. Surprisingly, the rates of mortgage delinquencies are declining.

Lenders have become more selective in their lending practices, primarily focusing on borrowers with excellent credit scores. As a result, the overall loan quality has improved compared to the past, leading to a direct reduction in default rates.

The lock-in effect also kept homeowners with low-rate mortgages in their homes as rents remain high in most markets.

FRED – Federal Bank of St. Louis

The housing market stabilized in the past year

As we look back on the past year, it becomes clear that the housing market defied many of the crashing predictions that had been circulating. Home prices held firm and delinquency rates declined despite supply constraints and interest rate hikes persisting.

Although uncertainty remains a constant in the world of real estate, the lessons learned from the past year can help guide us through future challenges and opportunities in the housing market.

This article was written by Michael Gifford from Inman News and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to [email protected].