It wasn’t so long ago that one could say that the real estate market was healthy, so much so
that it became a major category for investors. The ingredients were certainly there.
Mortgage rates were relatively low, demand was strong, and prices were affordable and
stable. People seemed to have the wherewithal to buy new homes. But here we are in 2023,
and the data and information on the current market is to say the least “a mixed bag.”
Take, for example, New Jersey which was believed to have one of the strongest housing markets
in the region. But this February, it had the highest foreclosure rate of any state, one filing for
every 2,271 housing units, according to ATTOM, the primary agency for real estate data. It was
followed by Maryland, where one in every 2,390 homes were in some stage of foreclosure. A
total of 30,528 U.S. homes had foreclosure filings — default notices, scheduled auctions or bank
repossessions. That might indicate that money has become tighter in recent months.
In previous housing crises, there was not only an abundance of inventory, but it appeared
that developers had overbuilt homes which certainly exceeded demand. As a result, the
developers and builders retrenched. The National Association of Realtors says there was a
2.6-month supply of homes for sale in February. A year earlier, that figure was a tiny 1.7-
month supply. The ongoing lack of inventory explains why many buyers still have little choice
but to bid up prices. It also indicates that the supply-and-demand equation simply won’t
allow a price crash in the near future.
Homebuilders pulled way back after the last crash, and they never fully ramped up to pre-
2007 levels. In recent years, there has been strong demand for homes on many fronts. Many
Americans who already owned homes decided during the pandemic that they needed bigger
places, especially with the rise of working from home. Millennials, who are a huge group and
in their prime buying years, were primary buyers of new homes. Sales soared 170.8% in the
Northeast, 29.8% in the West and 6% in the Midwest.
The interest by prospective buyers to buy new homes surged due to the increased supply and
low mortgage rates. Sales of new US single-family homes jumped to a one-year high.
New home sales surged 9.6% to a seasonally adjusted annual rate of 683,000 units in March,
the highest level since March 2022, the US Commerce Department reported.
New home sales are counted at the signing of a contract, making them a leading indicator of
the housing market.
In recent weeks, real estate experts noted that the robust housing market has been hard hit by
the Federal Reserve’s fastest interest rate hiking campaign since the 1980s.They agree that
interest rates will play a big role in the future of the real estate market. There is some daylight
in that regard as there are some indications that mortgage rates are on their way down. The
average rate on the popular 30-year mortgage, which hit a peak of 7.03% in late 2022, was
mostly lower in March, according to data from mortgage finance agency Freddie Mac.
According to the experts the 30-year, fixed-mortgage rate will fall to within the 5% to 6%
range in late 2023, significantly increasing housing sales. Experts expect the Federal
Reserve’s ongoing monetary policies to continue to put some upward pressure on mortgage
rates in the coming months. While mortgage rates are directly impacted by U.S. Treasury
bond yields, the Fed’s actions to contain inflation by hiking the federal funds rate tend to
push mortgage rates upward.
Although hedging their bets, the experts are predicting a significant drop in mortgage rates. Compass
U.S. region president, Neda Navab says: “There have been signals that mortgage interest rates may
be at or near their peak, given recent encouraging news around inflation and a corresponding drop
in the U.S. Treasury yields that help set mortgage rates. A sustained drop could push mortgage rates
into the 5% range late in the second quarter or in the second half of 2023, but that’s definitely not
guaranteed.” Mortgage Bankers Association (MBA) says: “Long-term rates have already peaked. We
expect that 30-year mortgage rates will end 2023 at 5.2%.” National Association of Realtors
(NAR) senior economist and director of forecasting, Nadia Evangelou: “If inflation continues to slow
down—and this is what we expect for 2023—mortgage rates may stabilize below 6% in 2023.”
If the experts are correct about the downward trend of mortgage rates and that home
values might have peaked, then real estate may indeed be on the verge of a resurgence.
Home prices actually declined in February 2023 compared to February 2022, the first year-
over decline in nearly 11 years. The nationwide median sale price in February 2023 was
$363,000, a 0.2 percent. What that means is that there will be many more prospective buyers in
More housing may become available if the trend to convert commercial space into residential
homes continues. According to the New York Times, “there is about 998 million square feet of
office real estate across the United States that’s available but in search of a tenant.” That’s a
vast amount of empty space — nearly 13 percent of the market — that could be turned into
two-bedroom apartments and other non-commercial space. The Times says that the United
States faces a deficit of more than three million homes.
Interpreting all of the data on the real estate market can be very daunting. On the one hand,
there is every reason for optimism, but it is all contingent on certain developments. For
example, what happens if the high rate of inflation continues, and the Federal Reserve finds
it necessary to hike interest rates to deal with inflation. What if commercial space cannot be
converted into residential space because of strict zoning regulations, as it is in many states?
What happens if people suddenly return to their offices and there is a huge demand for
In the coming months, the direction of the economy will become clearer through the smoke
that exists today. The real estate industry is watching very closely!