Hot or not: Where the market is going this summer and beyond
With inventory low and interest rates elevated, economists don’t expect to see activity pick up until later in the year.
- Despite slow sales, there’s no expectation that prices will tumble this summer, as long as inventory remains tight.
- Buyer and sellers may have to wait until spring 2024 to see a rebound in activity — if inventory builds and unemployment remains low.
Will the market warm up this summer? In most regions, probably not, say economists. But some turnaround is possible in the second half of the year.
With no burst of new spring listings, what should agents and their clients expect in the coming months? Here's what housing market economists have to say.
Will inventory rise this summer?
The general consensus is that inventory will remain low until interest rates drop further — which may not happen until inflation cools off.
Rick Sharga, CEO of the consulting firm CJ Patrick Company, noted that more than 70% of existing mortgages are under 4%. Sellers aren't motivated to give up their low rates unless life events, such as retirement, divorce or job changes, compel them to move.
"I do believe that mortgage rates will gradually decline over the course of the year and end 2023 somewhere between 5-6%," Sharga said in an email. "The closer to 5% we get, the more homes we'll see listed; but that will also likely increase demand a bit, and those two factors might cancel each other out."
Still, if affordability continues to improve, either through lower mortgage rates or lower prices, more homes may come on the market, said Hannah Jones, economic data analyst at Realtor.com.
"A typical seasonal bump in activity is likely as the weather continues to warm, but it will be far smaller than the last two years as housing costs are still largely unaffordable in many areas," Jones said.
The bottom line is that for the market to improve this summer, it needs a more consistent inflow of new listings over the next few months, coupled with flattening interest rates and prices, said George Ratiu, chief economist at Keeping Current Matters.
"If price growth slows even further, we could see mortgage rates moderate toward fall, leading to a more favorable environment for buyers," Ratiu said.
Zillow Senior Economist Orphe Divounguy is a little more optimistic. He thinks seasonal trends will prompt an uptick in inventory, even if rates don't fall. "Housing is seasonal, so inventory almost always builds up over the summer," said Divounguy. "We expect buyers to see more options in a few months, regardless of interest rate movements."
Are big price drops coming?
Unless the market is unexpectedly flooded with inventory, prices may not move much.
"Given that inventory is still below 2021 levels and far from pre-pandemic normal, it is difficult to imagine a large annual price drop," Divounguy said.
Prices could fall more significantly in some markets, particularly if a recession arrives and the job market is affected. But that doesn't seem likely at this point, said Lisa Sturtevant, chief economist at Bright MLS.
"And even if home prices do come down, we won't see the 30-40% price drops we saw during the financial crisis," Sturtevant said.
Also unlike during the Great Recession, foreclosures haven't shot up. Sharga said foreclosure activity is only about 60% of pre-pandemic levels, so distressed property isn't likely to have an impact on the market unless the economy really comes to a standstill.
Activity varies by market — will that continue this summer?
Nationally, the market has been sluggish this spring, but areas with affordable home prices are seeing increased activity, while pandemic boom towns are seeing lower activity and bigger price declines.
"I don't see any reason why those trends will reverse themselves over the summer," Sharga said.
If anything, the differences between markets will widen as economic conditions continue to shift, said Ratiu.
Sturtevant predicts West Coast markets, which have been hardest hit by tech layoffs, will be where prices fall the most this summer. Markets in the Midwest and Mid-Atlantic will see prices remain stable or even rise as demand continues to outpace supply.
How will the year end?
Buyers and sellers will have to be patient, as a big turnaround may not happen in 2023.
With inflation remaining around 6%, economists don't expect a rebound until spring 2024. That's when either interest rates or home prices could be low enough — and inventory could be high enough — to get buyers back into the market.
"I expect seasonal factors to dominate over the next 12 months, meaning a cooler fall and winter, and lower rates will set us up for a strong housing market in Spring 2024 — as long as layoffs and the unemployment rate remain low," Divounguy said.
By the end of 2023, Sharga expects existing home sales to land at around 4.4 million, down from last year's total of around 5.2 million. That slowdown in sales would also set the market up for a rebound in 2024, he said.