2023 Real Estate Housing Market Update – January

What is going on with the real estate market? Well first we should preface that although the headlines tend to speak of real estate market as national trend or numbers, it is very regional. Different parts of the country have many different trends going on so the national number is an average which does not help us much. We must look under the hood at the regional trends which vary significantly.

Let’s start with the overall data:

The number of homes for sale has increased by 65.5% compared to last year. (More homes for sale)

The total number of unsold homes, including homes that are under contract, has increased by 13.1% compared to last year. (Slight increase in inventory)

Home sellers are less active this year, with 5.4% fewer homes being listed for sale compared to last year. (Fewer people are selling)

The median price of homes for sale has increased by 8.1% annually in January, only slightly less than December’s growth rate. (Home prices still going up – not the trend we want to see right now especially with mortgage rates and costs up significantly with the FED raising rates)

Homes are spending 75 days on the market, which is 13 days longer than last year but still shorter than before the pandemic. (Days on market (DOM) is one of the top indicators for gauging near term price reductions. As homes remain on the market longer their pricing usually tends to come down. Homes right now are still on market for LESS time than prepandemic.)

So the overall patterns are: inventory of homes is increasing (small) and days in market are longer but still shorter than before the pandemic. Home prices (median) are still increasing. Yes home prices have not come down. Generally you want to see inventory rising (supply increasing) with demand remaining constant or decreasing to shift the powers to the buyers which helps bring down prices.

House prices fall where there is a decline in demand and/or excess supply. The main factors that cause a fall in house prices involve:

Rising interest rates (making mortgage payments more expensive) – we have right now.

Economic recession / high unemployment (reducing demand and causing home repossessions) – we have very tight labor market.

Fall in bank lending and fall in availability of mortgages (making it difficult to buy) – credit standards are tightening and it is more difficult to receive loans.

Fall in confidence/expectations of future house prices – very subjective. Many are saying it will be like 2008. Not I. Vastly different environment. That was a banking crisis related to riskier loans (subprime). However, I believe overall many have lower confidence in future house prices because of the foregoing above.

Changing demographics. (less demand, e.g. net migration) – we have had lots of this due to rise in remote work and other factors.

An excess of supply in the housing market – not really at this time as seen by the slight increase in inventory but still LOWER than pre-pandemic.

Fall in market rents making it less attractive to buy. – we have actually seen many choosing to rent over buy especially in NYC area due to being priced out of mortgages but rents are still rising. Supply & Demand.

Back to January 2023 real estate data:

According to Realtor.com’s January housing data, the number of homes for sale is continuing to grow compared to last year as time on market slows but home inventory is still below pre-pandemic levels. Newly listed homes and pending home listings annual declines have started to moderate, and the decline in the median home list price growth rate has also moderated, potentially signaling lower but stabilizing housing market activity.

January Saw a Moderate Decline in Newly Listed and Pending Home Listings

For buyers, a slower pace of home sales and more inventory provide more opportunities to buy their home at a “reasonable” price, but prices in most areas across the country are still higher than last year and interest rates continue to cut into home affordability.

For sellers, stabilizing price growth could mean more certainty going forward, but market activity remains low due to affordability challenges.

Regionally, the Southern region has seen the most growth in the number of homes for sale, with a 125.3% increase compared to last January. However, home inventory in the South is still 24.7% below pre-pandemic levels. The West region has seen the second-most growth, with a 114.3% increase compared to last year. Inventory in the West is only 16.0% below pre-pandemic levels. The Midwest and Northeast regions have seen slower growth, with 36.2% and 23.3% increases over last January, respectively. Inventory in the Midwest is still 38.2% below pre-pandemic levels, and it is 31.3% below pre-pandemic levels in the Northeast.

West Sees Slower Pace of Home Sales Compared to Pre-Pandemic Period

In January, the South saw newly listed homes increase by 5.4% compared to the previous year, while they declined by 20.6% in the West, 11.5% in the Midwest, and 8.2% in the Northeast. While the South saw more new listings than last year in January, newly listed homes are still 15.6% below pre-pandemic levels in this region.

Inventory increased in 49 out of 50 of the largest metros compared to last year. Metros which saw the most inventory growth include Nashville (+303.5%), Austin (+260.4%), and Raleigh (+254.8%). The only metro to see inventory decline on a year-over-year basis was Hartford (-8.0%).

The typical home spent 75 days on the market this January which is 13 days longer than the same time last year. Slower inventory turnover is primarily fueling the growth in actively listed homes but homes still spent 16 fewer days on the market this January than they did in the average January from 2017 to 2019.

Home Listing Time on Market

In the 50 largest metropolitan areas in the United States, the typical home spent 68 days on the market, 15 days more than the previous January. This trend was seen across all regions, with larger metros in the West seeing the greatest increase (+27 days), followed by the South (+16 days), Midwest (+7 days) and Northeast (+6 days). Homes in Western metros are also spending 12 more days on the market than pre-pandemic times, but in all other regions homes are still selling more quickly.

Out of the 50 largest metros, 45 saw an increase in time on market compared to the previous year. Time on market increased the most in Raleigh (+41 days), Las Vegas (+40 days), and Denver (+40 days). Only three markets saw shrinking time on market: Richmond (-20 days), Milwaukee (-8 days), and Buffalo (-3 days).

Listing Price Growth Stabilized in January

The national median list price remained stable compared to December, at $400,000 in January.

Overall, there is a stabilization but buyers are getting priced out due to higher mortgage rates and home prices still elevated from pre-pandemic. So let’s quickly compare: higher prices with higher rates. Not a good mix. Something has got to give.