Decades-high mortgage rates and soaring prices lead to near 30-year low in U.S. home sales

In 2023, the U.S. housing market experienced a significant downturn, with existing home sales reaching their lowest levels in over a decade. “Among the four major U.S. regions, sales slipped in the Midwest and South, rose in the West and were unchanged in the Northeast,” according to the National Association of Realtors.

This decline was primarily driven by a combination of high mortgage rates and a limited supply of houses, which discouraged both potential buyers and sellers, experts say.

The average rate on a 30-year fixed-rate mortgage rose sharply, reaching levels not seen since the early 2000s. The National Association of Realtors emphasized that existing home sales last year of 4.09 million, which is the lowest it’s been since 1995. However, the median national home price hit an all-time high of $389,800 last year.

This increase in mortgage rates made home purchases less affordable, leading to a reduction in demand. Many homeowners who had previously locked in lower mortgage rates were reluctant to sell, adding to the limited supply of available homes. Because of this, the number of home sales declined significantly in 2023.

“Despite sluggish home sales, 85 million homeowning households enjoyed further gains in housing wealth,” NAR Chief Economist Lawrence Yun said.

Yun added, “Obviously, the recent, rapid three-year rise in home prices is unsustainable. If price increases continue at the current pace, the country could accelerate into haves and have-nots. Creating a path toward homeownership for today’s renters is essential. It requires economic and income growth and, most importantly, a steady buildup of home construction.”

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Despite these challenges, some positive signs were observed toward the end of the year. Mortgage rates began to fall slightly, and combined with rising wages, this showed potential for improving housing affordability relative to earnings.

“Mortgage rates have been mostly easing since November, echoing a pullback in the 10-year Treasury yield, which lenders use as a guide to pricing loans,” per PBS. “The yield has largely come down on hopes that inflation has cooled enough for the Federal Reserve to shift to cutting interest rates this year.”

Agent Risa Corson told The Wall Street Journal that she has seen an increase in homebuying in the new year already.

“We definitely have seen renewed activity,” Corson said. “People are feeling a little more at ease, that the rates have come down a little. But there’s still some buyers that are a little wary.”

This week, the average rate for a 30-year fixed-rate mortgage dipped to 6.60%, reaching its lowest point in eight months. This marks a slight decrease from the previous week’s average of 6.6%, Reuters reported. This decline in mortgage rates could potentially lead to an increase in home resales in the coming months, especially as the housing supply continues to grow steadily.

“The decline in rates has also pushed up home-builder confidence. Builders benefited in 2023 from the shortage of existing homes on the market,” the Journal added. “A measure of U.S. home-builder confidence rose in January for the second consecutive month.”