Row of houses with data lines going up and down in background
Illustration by Lanette Behiry/Real Estate News; Shutterstock

Spring outlook still cloudy, but economists are cautiously optimistic 

An upward trend in mortgage rates, after weeks of declines, has raised concerns about whether buyers will return. But pent-up demand may push them to act.

February 18, 2023
4 minutes

Key points:

  • Zillow’s forecast predicts some competition among the fewer homes available, but not at the frenzied level of 2021 or 2022.
  • Despite higher rates, some agents are seeing competition pick up and multiple offers come in.
  • Sellers in most markets will up their chances of success if they price their homes competitively from the start, according to Zillow.

Just a few weeks ago, it was starting to look like real estate agents would be busy this spring — but the latest economic data is putting a damper on that prospect.

It's pretty clear to economists, brokers and real estate agents that there is pent-up demand in the market. But elevated interest rates, low inventory and high home prices have kept buyers on the sidelines this winter.

Optimism rose for the spring homebuying season in January, as 30-year mortgage interest rates trended downward, flirting with the idea of dropping below 6%. After a slew of economic reports suggested further rate hikes would be necessary to tame inflation, mortgage rates have steadily climbed in February. Daily surveys are indicating the average rate is creeping back up toward 7%, nearly the November peak.

The colliding forces of pent-up demand and tougher financial conditions have economists predicting that the spring could have the makings of a more typical season — not the revved up ones of 2021 and 2022, but not a total bust.

"Certainly, if mortgage interest rates were to spike again, or the economy were to enter a recession, the outlook would dim," said Leonard Kiefer, deputy chief economist with Freddie Mac in a column posted on the ATTOM website. "But, in a baseline economic scenario where inflation slows in 2023, interest rates stabilize or even modestly decline and the economy avoids a sharp increase in unemployment, the housing market should balance out."

Zillow also appears to be cautiously optimistic about the spring season, noting in its outlook forecast that it expects this spring to be quieter, but still competitive enough that a home priced right will sell quickly. Zillow senior economist Jeff Tucker said a lot will depend on where interest rates go next.

If they move toward 6% or below, more buyers and sellers will enter the market. If rates are around the 7% range, buyers might just wait, much like what happened when rates hit that level last fall.

"The economic news from earlier this winter raised hopes for a soft landing of the economy and housing market, but the risk of renewed inflation or even a recession is still significant, and either would have a serious impact on the housing market," Tucker said.

Another possibility is that after months of taking a wait-and-see approach, would-be buyers will decide to move ahead despite the higher mortgage rates.

"Due to this pent-up demand, a lot of people will accept that rates above 6% constitute the 'new normal' in the housing market," said Lisa Sturtevant, chief economist for Bright MLS, when talking about interest rates last week. "Prospective homebuyers might be surprised by the level of competition in the market, where they are competing with cash buyers as well as other traditional buyers for very low inventory." 

Evidence of competitive buying is already happening in some markets. In Seattle, multiple offers are starting to roll in again, said John Deely, vice president of operations at Coldwell Banker Bain.

"It's not like it was at the peak of the market, but buyers are out there and competing for properties," he said in comments made for a Northwest Multiple Listing Service report.

In its forecast, Zillow noted buyers should expect competition at lower price points because inventory remains low. Buyers will mostly be motivated by life transitions like new jobs, marriages and a growing family.

And for sellers, Zillow said well-priced, well-marketed homes will receive attractive offers during their first weekend on the market. But many listings will sit on the market longer and may need price cuts to sell. Last month, Zillow found 22% of listings saw a price cut, the highest share for any January since at least 2018.

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