Overview
Existing home sales in the US plunged in 2023 to the slowest pace since 1995, capping off the worst year for the housing market since the 2008 financial crisis.
According to new data from the National Association of Realtors (NAR), sales of previously owned homes fell 1% in December to a seasonally adjusted annual rate of 3.78 million. For the full year, sales sank 17.8% from 2021 to 5.03 million – the lowest total since 2014 and the biggest annual decline since 2008.
The housing slump was driven by surging mortgage rates, which peaked above 7% in the fall before retreating to 6.15% by year-end. With the average rate on a 30-year fixed mortgage more than doubling from 3.1% at the start of 2022, home affordability deteriorated significantly. At year-end, just 19% of Americans could afford a median-priced home.
As sales slowed, home prices moderated after posting record gains of nearly 20% in 2021 and 2022. The national median home price rose 2.3% in December from a year earlier to $366,900 – a record high but the smallest annual increase since June 2020. For all of 2023, the median price was up 10.2%.
With sales activity slumping, housing inventory improved from historically tight conditions but was still low by historical standards. There were 970,000 homes for sale at the end of December – up 2.1% from November but down 13.4% from December 2021. At the current sales pace, it would take 3.0 months to sell all the inventory – up from 1.8 months a year earlier.
Lead Up to the Housing Slump
The sharp housing downturn in 2023 was a dramatic reversal from the frenzied market of the prior two years.
The pandemic triggered a surge in demand for homes as buyers took advantage of low mortgage rates and sought more living space. But home construction failed to keep up, causing inventory to plunge while home prices escalated at the fastest pace on record.
Bidding wars were common and homes routinely sold above asking price, pricing many first-time buyers out of the market entirely. Investors also flooded the market, further squeezing supply.
By early 2022, with mortgage rates still near all-time lows, the market had become completely detached from fundamentals. But the landscape shifted rapidly when the Federal Reserve embarked on an aggressive series of interest rate hikes to combat surging inflation.
As mortgage rates shot higher, home sales began slowing over the summer before going into freefall by the fall. With affordability significantly eroded, buyer demand evaporated while sellers resisted cutting prices.
December Sales Breakdown
Sales data for December provides insight into which market segments were most impacted by the housing downturn.
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Entry-level homes: Sales of homes priced below $250,000 – typically sought by first-time buyers – plummeted 28.8% for the month and 25.3% for the full year. Competition eased but affordability was still a major barrier.
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Investors: All-cash sales, typically associated with investors, tumbled 36% year-over-year in December. Many investors retreated as low inventory made deals harder to find and high mortgage rates eroded profit margins on rental properties.
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New construction: Sales of newly built homes dropped a staggering 45.8% for the month and 26.6% for 2023. Builders scaled back projects dramatically amid weak buyer traffic, supply chain issues, and rising construction costs.
| Segment | December Sales Change | 2023 Sales Change |
|---|
| Entry-Level | -28.8% | -25.3%
| Investors/Cash Sales | -36% | n/a
| New Construction | -45.8% | -26.6%
Regional Trends
The housing slump was widespread geographically, with annual sales down in all regions and 40 states posting declines of 10% or more.
The West suffered the sharpest drop, with sales plunging 29.6% – more than double the national rate. Boise, Las Vegas, Phoenix, and big California cities like San Francisco and Los Angeles saw major retrenchments after explosive price gains in 2021-2022 stretched affordability beyond limits.
Other regions posting steep sales declines included the Northeast (-19.3%) and Midwest (-16.4%). Hardest hit markets included many less expensive areas in the Southeast and heartland – indicating the affordability crunch spread beyond expensive coastal markets.
Most analysts expect housing conditions to remain challenging in early 2024 until mortgage rates moderate further. But a rebound is unlikely to match the frenzied conditions of 2020-2022 given the deterioration in affordability.
Market Outlook for 2024
While economists expect home sales to stabilize later in 2024, market conditions are highly uncertain and will depend on the trajectory of several key factors:
Mortgage rates – The speed and magnitude of declines in mortgage rates will significantly influence if sidelined buyers return to the market. Most forecasts call for 30-year rates falling back to 5-6% by late 2024 as inflation continues easing.
Home prices – After only mild declines so far, home prices may have further to fall to realign with local wage growth and eroded buyer purchasing power. Additional inventory may also put downward pressure on prices.
Economy & jobs – Recession risks have increased given tightening financial conditions. A significant economic downturn would exacerbate housing weakness via job losses. On the flip side, resilient consumer fundamentals could limit declines.
New construction – Inventory relief depends on builders restarting stalled projects. But they will remain cautious until buyer demand and order trends improve decisively.
In the meantime, the housing correction will continue causing ripple effect economic impacts, including lower spending on things like furniture and home remodeling. The downturn will also weigh on housing sector jobs and broader consumer confidence.
Tables and Figures
Annual Home Sales by Year
| Year | Home Sales |
|---|---|
| 2022 | 5.12 million |
| 2023 | 5.03 million |
| 2024 (Forecast) | 5.4-5.8 million |
December 2023 Regional Home Sales
| Region | Sales Change | Median Price |
|---|---|---|
| Midwest | -13.3% | $287,000 |
| Northeast | -14.4% | $420,400 |
| South | -4.6% | $327,100 |
| West | -31.4% | $557,600 |
Mortgage Rates Over Time
Conclusion
The housing market ended 2023 mired in its worst slowdown since the Great Recession – the culmination of rocketing mortgage rates and eroding affordability after two years of overheated price gains. Home sales activity is likely to remain subdued until rates ease further, inventory expands more meaningfully, and buyer demand stabilizes. But even when conditions improve, experts caution the frenzied price appreciation of 2021-2022 is unlikely to return given the long-term erosion in affordability. For potential buyers, experts emphasize patience and resisting overpaying despite temptations of a possible market bottom.
To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.
