Housing market's 'about face' upended expectations for 2023
Inventory levels aren't following their typical pattern, reversing predictions for the second half of the year.
- Despite elevated interest rates and affordability challenges, demand for housing was stronger than expected in the first six months of the year.
- When the year started, inventory was up 75% over January 2022, suggested an upward trend; but in July, inventory levels are expected to fall below where they were last year.
- The drying up of inventory continues to make affordability an issue in 98% of markets.
Housing inventory levels dried up faster than many expected in the first half of 2023 — something buyers, and the industry, will have to contend with for the rest of the year.
Inventory was the main topic of discussion during ATTOM's 2023 Mid-Year Housing Outlook, which featured Todd Teta, ATTOM's chief product and technology officer, and Mike Simonsen, founder of Altos Research.
At the beginning of 2023, it looked like inventory was primed for a comeback, with data showing it was 75% higher than a year earlier. Heading into July, however, inventory is now poised to be lower than the July 2022 level, "which is a big surprise," Simonsen said.
Based on the current trend, he's expecting inventory levels at the end of 2023 to be at around 450,000, which is 15% lower than the previous year. That's also well off Altos' December forecast, which predicted that inventory would climb to about 700,000 units at the end of 2023.
"What we found is that buyers are adjusting, more or less, to higher mortgage rates and are finding a way to transact," Simonsen said, while also noting overall sales are down.
Inventory likely to remain low unless interest rates jump
So is there any way to manifest more inventory? Interest rates could play a key role — if they go up, said Simonsen, who pointed to data indicating that inventory tends to rise and fall in response to interest rates. That pattern was apparent at the beginning of the pandemic, when interest rates dropped below 3% and inventory quickly disappeared; then last fall, as interest rates spiked, inventory began to climb.
In the short term, higher rates would be another obstacle for buyers, but in the longer term, more inventory means a more balanced market.
The drying up of inventory kept home values from falling significantly, with many markets seeing price increases. That also showed up in ATTOM's second quarter affordability report, released separately.
The report found that median-priced homes were less affordable in 98% of the counties analyzed compared to historical averages.
"The U.S. housing market has done an about-face following a downturn that threatened to usher in an extended period of flat or falling prices. With that has come another blow to how much house the average worker around the country can afford," said ATTOM CEO Rob Barber.
Don't count on falling home prices
Altos Research expects prices to continue rising for now, as prices for homes currently in the closing process are up 3.6% compared to last year.
For agents, that could mean some challenging conversations with potential buyers. News of declining home prices may have created unrealistic expectations — but that data is based on sales from earlier this year.
"There's still a lot of folks out there that think the market is crashing," Simonsen said. "In the future, the headlines are going to show that 2023 [prices] are flat to up."