The residential real estate market tumbled in 2023, as soaring interest rates steadily slowed sales activity but home prices still hit a record high.
The median home sale price in 2023 was $389,800, up about 1% from 2022 and the highest on record, according to data from the National Association of Realtors released Friday.
That is good news for the 85 million homeowning households that enjoyed further gains in housing wealth, said Lawrence Yun, chief economist at NAR. However, it proved to be a maddening market for new homebuyers, who were priced out by rising prices and, for much of the year, surging mortgage rates that made this the least affordable market in decades.
As a result of high prices and low inventory, home sales dropped to their lowest level since 1995, with 4.09 million homes sold, down 19% from the year before. This follows an 18% drop in home sales from 2021 to 2022.
“Obviously, the recent, rapid three-year rise in home prices is unsustainable,” said Yun. “Creating a path towards homeownership for today’s renters is essential. It requires economic and income growth and, most importantly, a steady buildup of home construction.
The latest month’s sales look to be the bottom before inevitably turning higher in the new year, added Yun.
“Mortgage rates are meaningfully lower compared to just two months ago, and more inventory is expected to appear on the market in upcoming months.”
December is expected to be the lowpoint for sales of this cycle, and Yun said economists expect more homes to be sold in 2024 as mortgage rates come down.
The last time home sales were this low, in 1995, sales were on the upswing. The median home price that year was $114,600 and there were 3.8 million homes sold before crossing over 4 million the following year. Mortgage rates dropped in 1995, from 9% to 7%.
The typical annual pace of home sales in the five years prior to the pandemic was 5.5 million, according to Yun. Since the pandemic, annual sales numbers have been much more volatile.
Even with all the disruptions of the onset of the pandemic, sales in 2020 ended at about 5.5 million. The next year, sales soared to over 6 million amid the frenzied market as mortgage rates sank in 2021. Then, sales dropped to 5 million in 2022 as the Federal Reserve began its historic campaign to rein in inflation, pushing mortgage rates higher. As mortgage rates hit 7.79% in October 2023, the highest in 23 years, sales sank again, to about 4 million.
But high mortgage rates aren’t entirely to blame for the deficit in transactions last year, said Lisa Sturtevant, chief economist at Bright Multiple Listing Service, in a statement Friday.
“The demand for housing and homeownership, in particular has remained high, despite higher rates,” she said. “Prospective homebuyers have been shut out of the market by a lack of inventory. If there had been more listings on the market in 2023, we would have had more home sales.”