Pending home sales, which refer to transactions that have a signed contract but aren’t yet complete, increased by 2.5% in December, according to the National Association of Realtors (NAR). However, a slight increase in transaction activity last month is nothing compared to the 33.8% annual decrease in pending sales for 2022.
Existing home sales refer to existing home sales that successfully close. This metric fell by 34% last year. Transactions dropped 1.5% in December, representing the 11th month where existing home sales declined.
Home Sales Could Rebound This Year
Lawrence Yun, Chief Economist at NAR, expects home sales to rebound in 2023 due to a drop in mortgage rates. The average 30-year fixed-rate mortgage was 6.48% on January 5 but declined to 6.13% on January 26.
“This recent low point in home sales activity is likely over,” NAR Chief Economist Lawrence Yun said in a press release. “Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market.”
“December was another difficult month for buyers, who continue to face limited inventory and high mortgage rates,” Yun said in a separate press release. “However, expect sales to pick up again soon since mortgage rates have markedly declined after peaking late last year.”
While Yun predicts that mortgage rates will not reach their highest level as they did last year, he also expects mortgage rates to fluctuate throughout 2023. Buyers shouldn’t be surprised if rates slightly increase again in the coming weeks or months.
“The new normal for mortgage rates will likely be in the 5.5% to 6.5% range,” according to Yun. “Job gains will steadily become important in driving local home-sales markets. The South, in particular, is set to outperform the rest of the country, thanks primarily to better job market conditions in this part of the country compared to other regions.”
What Should Prospective Homebuyers Expect in 2023?
According to NAR, the median price for existing homes of all types increased by only 2.3% from December 2021 to December 2022. Home prices increased in every region of the country, but there is increasing evidence that home price growth is normalizing. Additionally, major firms like NAR, Freddie Mac, Freddie Mae, and CoreLogic forecast that home prices won’t grow in 2023 and may even fall slightly. This is, of course, good news, but prospective homebuyers still need to contend with mortgage rates above 6.0%.
Since mortgage rates and home prices won’t change too much over the coming year, buyers who wish to purchase a home should begin their search now. Some buyers may want to wait for conditions to improve before entering the housing market. However, as RealtyHop previously reported, mortgage rates will stay at or above 6.0% for 2023.
Buyers who wish to begin their home search this year likely will not benefit from waiting it out for more favorable market conditions. While inventory may increase in the warmer months as more sellers put their property on the market, the country continues to deal with a housing shortage that keeps home prices and demand relatively high. Even though the market continues to transition from a seller’s market to a buyer’s market, buyers do not have as much purchasing power as they did in 2021 and the beginning of 2022.