State of the Housing Market: Summer 2023

Hope springs eternal for summer home buying

Making sense of the housing market is imperative when you’re trying to buy or sell a home.

History says seasonality plays a big role. The summer is typically a boom period, with borrower activity tending to rise alongside temperatures.

This is The Mortgage Reports’ inaugural State of the Housing Market. This quarterly feature will run through the latest trends of real estate’s major facets; including prices, sentiment, and inventory data.

At a glance...

• U.S. home price growth slowed for 12th-straight month, per CoreLogic
• For-sale listings made big gains, per Realtor.com
• New construction all pointed up, per the Census Bureau and HUD
• Existing property sales were tepid, per NAR
• New home sales took off, per the Census Bureau and HUD
• Home buyers are looking for silver linings, per Fannie Mae
• Mortgage lenders are practicing patience, per the MBA
• Home builders are gaining confidence, per NAHB

Home prices

Pandemic conditions drove property value growth to previously unseen levels. However, the rate of appreciation has normalized in recent times.

Single-family home prices rose 1.4% annually in May, according to CoreLogic’s Home Price Index. While it marked the 136th consecutive month of positive year-over-year growth, it was the 12th consecutive month of deceleration. Additionally, prices inched up 0.9% month-over-month.

“Elevated mortgage rates and high home prices are putting pressure on potential buyers. These dynamics are cooling recent month-over-month home price growth, which began to taper and is returning to the pre-pandemic average,” said Selma Hepp, chief economist at CoreLogic.

At the state level, Maine led the nation with a 7.2% annual gain. New Jersey and Indiana followed with increases of 7.1% and 6.9%, respectively. Prices fell from the year prior in 11 states with the biggest drops coming at 8% in Idaho, 7.5% in Washington, and 5.6% in Nevada.

CoreLogic forecast a 1% increase in prices from May to June and a 4.5% bump by May 2024.

Housing inventory

The amount of available properties at a given time greatly impacts real estate dynamics.

A bountiful for-sale market benefits buyers, while tight supply swings the pendulum of advantage toward sellers. The ongoing inventory shortage is perhaps the biggest detriment to the overall market, as demand overshadows supply.

The latest listing data

June had 613,791 active listings, according to Realtor.com’s Housing Market Trends report. That number jumped 19.7% from May and 7.1% from June 2022.

“If buyers see homes sitting on the market for a while that haven’t received many good offers, there may be some opportunities for further negotiations. It never hurts to ask a seller if they would be willing to reduce their price a little, contribute to closing costs, or even buy down their mortgage rate,” said Clare Trapasso, Realtor.com’s executive news editor. “While this likely won’t work for the well-located, move-in ready homes oozing curb appeal, buyers may want to take another look at homes that may need a little work. Sometimes a coat of paint and minor work can make a big difference.”

Among the 50 largest metropolitan areas, southern cities showcased the biggest inventory gains. San Antonio led the way with a 65.7% year-over-year increase in active listings. Nashville, Tenn., New Orleans, Memphis, Tenn., and Austin, Texas rounded out the top five, growing by 63.3%, 60%, 59.4% and 47.8%, respectively.

Conversely, the largest annual decreases in active listings were mostly scattered along the West Coast. The biggest drops came at 44.1% in San Jose, Calif., 35.9% in San Diego, 33.4% in Sacramento, Calif., 30% in San Francisco, and 27.9% in Hartford, Conn.

The pipeline

For a look ahead, the Census Bureau and Department of Housing and Urban Development put together a joint Monthly New Residential Construction Report with three leading indicators of housing supply.

First, building permits hit a seasonally adjusted annual rate (SAAR) of 1.491 million in May. That grew 5.2% from April but fell 12.7% from May 2022.

Secondly, May housing starts reached a SAAR of 1.631 million. That rose 21.7 percent monthly and 5.7% yearly. Lastly, housing completions grew to a SAAR of 1.518 million, marking increases of 9.5% month-over-month and 5% year-over-year.

“Today’s new residential construction report from the Census Bureau showed single-family starts vastly exceeding expectations in May,” said Doug Duncan, Fannie Mae’s chief economist. “While less impressive than the starts figure, single-family permits have steadily trended upward since January, indicating new home construction is indeed in recovery from its winter trough.”

Home Sales

The frequency and summation of sold homes provide a picture for how the sector is performing. It can also tell a story of where demand stands compared to supply and affordability.

In May, a SAAR 4.3 million existing homes sold, according to the National Association of Realtors (NAR). This edged up 0.2% from April but fell 20.4% from May 2022.

Broken down by price tier, $250,000-$500,000 existing homes accounted for 45% of sales. Among the country’s four major regions, the South led with a 47% share of sales, followed by 23% in the Midwest, 18% in the West and 12% in the Northeast.

“Relatively steady [mortgage] rates have led to several consecutive months of consistent home sales,” said Lawrence Yun, NAR’s chief economist. “Newly constructed homes are selling at a pace reminiscent of pre-pandemic times because of abundant inventory in that sector. However, existing-home sales activity is down sizably due to the current supply being roughly half the level of 2019.”

Sales of new homes took off in May, reaching the highest level in 14 months, according to the Census Bureau and HUD. These sales ran at a SAAR of 763,000, good for jumps of 12.2% over April and 20% over May 2022.

On a year-to-date basis, new home sales rose 1.6% in the South and 0.8% in the Northeast, while falling 2.5% in the Midwest and 20.7% in the West.

“Demand for new homes is strengthening because of a lack of existing home inventory,” said NAHB Chairman Alicia Huey. “And while builders continue to grapple with elevated construction costs, an encouraging sign is a big gain in home sales in the $200,000 to $300,000 price range. In May 2022, just 5,000 homes sold in this range and that total increased to 12,000 in May 2023.”

How are home buyers feeling?

The general consensus among house hunters can shape market competition.

More demand — especially when for-sale inventory is low — can create frenzied bidding wars and accelerate home price growth. When home buyer conditions aren’t opportune, borrowers may be able to get a relatively good deal on a property.

Through a consumer survey, Fannie Mae’s Home Purchase Sentiment Index (HPSI) evaluates the overall view and outlook of the housing market through six components: Good time to buy, good time to sell, home price expectations, mortgage rate expectations, job loss concern, and household income. The index launched in 2011 and runs on a scale of zero to 100. It reached a high of 93.8 in August 2019 and a low of 56.7 in October 2022.

In June, the HPSI rose to 66, up from 65.6 month-over-month and 64.8 year-over-year. The share of respondents who said it was a ‘good time to buy’ had the largest gain, up a net five percentage points month-over-month. Meanwhile, ‘good time to sell’ fell the most, decreasing three percentage points from May.

“Confidence in the housing market appears to have plateaued at a relatively low level, suggesting that many consumers may be coming to terms with elevated mortgage rates and high home prices,” Duncan said. “We continue to forecast home sales to slow in the second half of the year, compared to the first half, due to ongoing affordability constraints and lack of housing supply.”

How are lenders feeling?

Mortgage lenders constantly adjust their underwriting standards. Their willingness to approve and take on a home loan depends on both the borrower’s financial profile and the overall economic conditions at that point in time.

When the economy runs hot, lender leniency tends to go up because those mortgages come with less risk. The opposite holds true during leaner times or recessions due to heightened uncertainty.

The Mortgage Bankers Association (MBA) measures this phenomenon with its Mortgage Credit Availability Index (MCAI). The MCAI has a baseline score of 100. Any score above that means lenders are more likely to extend credit while anything below indicates tighter standards.

The MCAI inched up from 96.5 in May to 96.6 in June and hovers around near-decade lows. In June 2022, the index sat at 119.6.

“Mortgage credit availability was essentially unchanged in June, remaining close to the lowest level since early 2013, as the industry continues to operate at reduced capacity,” said Joel Kan, MBA’s deputy chief economist. “Lenders are streamlining their operations by offering fewer loan programs, with some exiting certain channels.”

How are home builders feeling?

Home builder sentiment ebbs and flows based on consumer demand, market conditions, shifting costs and supply chain status.

The National Association of Home Builders (NAHB) and Wells Fargo measure this sentiment on a 0-100 scale in their monthly Housing Market Index (HMI) survey. The survey is broken into three components: current home sales, home sales over the next six months and traffic of prospective buyers.

In June, builder confidence climbed to 55, improving for the sixth month in a row and reaching a positive score for the first time in 11 months. It jumped from 50 in May but fell short of 67 one year earlier.

“Shelter cost growth is now the leading source of inflation, and such costs can only be tamed by building more affordable, attainable housing,” said Robert Dietz, NAHB chief economist. “The Federal Reserve nearing the end of its tightening cycle is also good news for future market conditions in terms of mortgage rates and the cost of financing for builder and developer loans.”

The bottom line

Whether you’re a buyer or seller, navigating the housing market can be a huge challenge.

While many real estate experts will tell you it’s never a bad time to buy a house as long as you can comfortably afford it, doing your homework can give you a leg up on the competition.

If you’re ready to start your journey of homeownership or sell your current property, reach out to a local mortgage professional today.