5 findings that characterize the housing market today

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The housing market of 2023 looks very different to the one seen not that long ago, when interest rates hit stunning lows. As buyer and seller behavior shifts in reaction to higher interest rates and sour macroeconomic predictions, mortgage originators are wise to observe carefully and reshuffle their strategies to keep winning business. Below we round up a number of findings that could inform those plans.

Buyers and sellers are biding their time

The prospect of a high monthly payment at a lofty interest rate is making buyers think twice about entering the market, while sellers are also backing out of deals.

As a result, the number of homes sold was declining in the fall, down by 25% compare to last year while new listings were also down by 22%, according to a Redfin report.

On the upside, first time homebuyers may benefit from rising rates, as fewer homeowners are likely to plan on moving in this market, giving buyers more time to find the right property and more power to negotiate the purchase price.

Read more:

Home buying, listings substantially declined from last year: Redfin

First-time buyers are set to dominate

Young homebuyers looking to enter the market for the first time are gaining the upper hand on existing buyers, despite higher interest rates and increasing home prices.

"While rising mortgage rates are hurting affordability for all buyers, first-time buyers may be less deterred by higher rates because they're comparing a monthly mortgage payment to what they're paying in rent," said Manny Garcia, population scientist at Zillow.

With current homeowners not only held back by rising rates, but also the need to time their purchase to a sale, first-timers now have an additional advantage in their flexibility to buy on their own schedule.

Read more:

The share of first-time homebuyers increases by almost 50%

Severe weather events aren't causing homeowners to think about moving

The cost of homeowners' and flood insurance has risen in the last five years, as the climate crisis has led to an increase in hurricanes, tornadoes and other severe weather events, according to a Freddie Mac survey.

But homeowners in the areas most likely to be impacted are showing their resilience in large numbers — 60% said that they would not think about moving if the frequency of such natural disasters increased.

It seems that Americans continue to be drawn to making their home in desirable coastal locations, despite their awareness of climate change in those areas and the possibility of significant financial losses.

Read more:

Severe weather concerns homeowners… but only so much

Housing price increases are slowing down

The upward trend in housing prices may have hit a peak across the country towards the end of 2022, after the first month-on-month decrease in more than two years, according to the Federal Housing Finance Agency's house price index covering nine census divisions.

"The 12-month change in house prices remains at historically high rates, but the rate of growth continues to moderate across all census divisions," said Will Doerner, supervisory economist in the division of research and statistics at the FHFA.

The S&P CoreLogic Case-Shiller national home price index that tracks 20 cities nationwide also reported lower home prices increases, describing the shift as a "forceful deceleration" of national housing prices.

Read more:

Home prices have dropped for first time in more than 2 years

Fears of a first quarter recession are causing concerns

Mortgage originations are likely to decrease in 1Q23, continuing a downward trend over the course of the last two years, as the country goes into a recession, according to Fannie Mae forecasts.

"The economy caught its breath in the second half of 2022, but that doesn't change our expectation that it will run out of air in early 2023 via a mild recession," Doug Duncan, Fannie Mae chief economist, said in a press release. "While uncertainty still exists, a growing set of signs, including an inverted yield curve, weakness in the Conference Board's Leading Economic Index, and a slowdown of manufacturing activity, support our ongoing contention that the economy is likely to contract next year."

Read more:

Fannie Mae cuts 2023 outlook on recession expectations