What Declining Sales Volumes and an Increased Number of Listings Suggest for U.S. Housing Prices in 2023
The U.S. housing market has seen a steady decline in monthly sales volumes and an increase in available listings of late, which suggests that prices could drop further in 2023
Much like the stock market, the U.S. housing market has suffered in 2022. And based on current projections, that suffering could extend into 2023.
The health of the housing market typically coincides with the health of the underlying U.S. economy. Based on recent comments by leaders at the Federal Reserve, the U.S. economy is expected to experience a slight cool down in 2023.
Last Wednesday, in the wake of the central bank’s most recent meeting on interesting rates, Fed officials said they expect the unemployment rate in the U.S. to increase to roughly 4.6% in 2023, from the current level of 3.7%.
Rising unemployment is like kryptonite for consumer confidence, which means the housing market could be in for a bumpy ride next year. Especially considering that mortgage rates are now roughly double what they were a year ago.
In 2022, one of the primary themes in the housing market has been a huge decline in transactions. This October, total home sales were down 5.9% as compared to September 2022. From October 2021 to October 2022, the decline was a lot more severe—28%.
Moreover, the October drop in home sales represented the ninth straight month in which total home sales were lower than the previous month. In absolute terms, about 4.4 million homes traded hands during the month of October. Back in January of this year, the monthly total was closer to 6.5 million.
Source: National Association of Realtors
However, valuations in the U.S. market have been surprisingly resilient. June 2022 marked the peak in the national median U.S. home price, clocking in at about $413,000. Today, the national median home price has dropped to $380,000—representing a modest decline of roughly 8% over the last four months.
Officials at the Federal Reserve have warned that the total peak-to-trough drop in housing prices could be as much as 20%, assuming a worst-case scenario. A 20% drop would push the national median home price down to about $330,000, which would be in line with where prices were back in Q3 of 2020.
One trend that supports the Fed’s pessimistic outlook is the recent rise in home listings —especially in some of the country’s hottest real estate markets. For example, the available supply of homes for sale in some markets has more than doubled in the last 12 months in markets such as Phoenix, Nashville, Austin and Tampa.
Big jumps in available supply can often lead to large price drops—although not in every instance. Supply, or a lack thereof, has certainly been one of the key drivers of housing price increases in the last couple of years.
During the pandemic, foreclosure and eviction moratoriums were instituted to help people endure the economic turmoil associated with rolling lockdowns. But those moratoriums also reduced the supply of available housing on the market, and the supply shortages catalyzed higher prices.
However, with supplies now normalizing, and mortgage rates sitting at multidecade highs, further declines in the national median U.S. home price appear likely in 2023. But the severity of those declines will undoubtedly vary by region.
If prices do moderate, that could bring fresh interest to the market, and catalyze a reversal of the current downward trend—at least in terms of the monthly sales figures. As illustrated below, most industry experts expect the housing market to become more favorable for buyers at some point next year.
Source: NoradaRealEstate.com
To track and trade the U.S. housing market, readers can add the following symbols to their watchlists:
- D.R. Horton, Inc. (DHI)
- Home Depot, Inc. (HD)
- iShares Residential Multisector Real Estate ETF (REZ)
- iShares Core U.S. REIT ETF (USRT)
- KB Home (KBH)
- Lennar Corporation (LEN)
- LGI Homes, Inc. (LGIH)
- Lowe’s Companies, Inc. (LOW)
- NVR, Inc. (NVR)
- PulteGroup, Inc. (PHM)
- Real Estate Select Sector SPDR Fund (XLRE)
- Redfin Corporation (RDFN)
- Schwab US REIT ETF (SCHH)
- SPDR S&P Homebuilders ETF (XHB)
- Toll Brothers, Inc. (TOL)
- Vanguard Real Estate ETF (VNQ)
To follow everything moving the markets during the remainder of 2022 and beyond, check out tastylive, weekdays from 7 a.m. to 4 p.m. CDT.
Sage Anderson is a pseudonym. He’s an experienced trader of equity derivatives and has managed volatility-based portfolios as a former prop trading firm employee. He’s not an employee of Luckbox, tastylive or any affiliated companies. Readers can direct questions about this blog or other trading-related subjects, to support@luckboxmagazine.com.
