U.S. Home Sales: The Slowest Year Since the Great Recession

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The year 2023 is on track to become one of the slowest for U.S. home sales since the Great Recession, as persistently high mortgage rates and soaring prices continue to restrain the housing market.

With just over two months remaining in the year, Redfin’s projections indicate that there will be a total of 4.1 million existing home sales in 2023. This would mark the lowest number of home sales since the housing crisis of 2008.

Chen Zhao, the economic research lead at Redfin, explained the challenging situation for buyers, stating, “High mortgage rates and still-elevated home prices are making it increasingly difficult for people to afford a home.”

A recent report from the National Association of Realtors (NAR) echoes this sentiment, revealing a 2% decrease in home sales from August to September. Compared to September 2022, home sales are down 15.4%. This decline is observed across all regions of the United States, except the Northeast.

Interest Rates and Their Impact on the Housing Market

The rise in mortgage rates, driven by the Federal Reserve’s efforts to combat inflation, has substantially increased homebuying costs for most Americans. Mortgage rates have surged to 7.63%, affecting the affordability of homes for potential buyers.

While high mortgage rates theoretically reduce competition in the housing market and lead to lower prices, in reality, home prices have continued to rise. Redfin notes that the supply of homes for sale remains insufficient, as current market conditions deter homeowners from selling. Many potential sellers are unwilling to relinquish their existing low-rate mortgages to purchase a new home at a higher rate.

The limited housing inventory keeps the market competitive and contributes to soaring home prices, despite reduced demand. Redfin reports that the median sale price for homes reached $369,250 for the four weeks ending October 15, marking a 2.5% increase compared to a year ago. The NAR’s data also underscores the trend of rising home prices.

Lawrence Yun, chief economist for the National Association of Realtors, emphasized the necessity for more housing supply, stating, “For the third consecutive month, home prices have increased from a year ago.”

The Cost of Affording a New Home

In a separate report, Redfin highlighted that it now requires a salary of $115,000 to afford the median-priced home in America. This figure has risen by 15% over the past year and has surged by a staggering 50% compared to the onset of the pandemic. Monthly mortgage payments have reached a record high of $2,866, up from $2,395 a year ago.

Despite the prevailing challenges, there are reasons for optimism for potential homebuyers. While home listings have decreased by 14% compared to a year ago, they have shown slight growth in recent months, providing buyers with more options and potentially relieving some of the pricing pressure.

Additionally, there is increasing speculation that the Federal Reserve may not implement further interest rate hikes this year. While the persistence of inflation remains uncertain, this development could be promising news for individuals in the market for a mortgage.