Q1 2023 US Housing Market Trends And What You Should Learn From Them

Even if the first quarter doesn’t set the tone for the rest of the year, it’s a good idea to look into the housing market trends that emerged or continued from the previous years and generate insights that can help us make smarter decisions.

2023 Noticeable Trends

According to the monthly reports from Realtor, the following trends were observed in the US housing market.

• The number of active listings has steadily declined over three months. The pattern is similar to 2021 but mostly an outlier (if we look back till 2017) as in most years, the number of active listings either rose up or remained stagnant in the first quarter, even if the previous year ended with a downward trend. Active listings refer to homes that are currently available for acquisition. However, there were more active listings for Q1 2023 compared to the last two years.
• The pattern of total listings, which includes homes that have yet to be sold and homes that are in the process of being sold, is similar to the first quarter of the last two years (2021 and 2022), but it’s slower/lesser compared to previous years.
• Fewer new homes were listed for sale in Q1 2023 than in the past six years. The activity was also quite different in different US regions. The Southern region has been most active compared to the others, and even when there was a market-wide decline, the Southern region experienced the minimal brunt of it. 
• Home inventory in the entire US has been far below the pre-pandemic levels.
• For the first quarter of the year, homes have taken longer to sell compared to 2021 and 2022, though the difference is minimal between Q1 2023 and Q1 2021. In March 2023, the average number of days on the market was 54, compared to 38 days in 2021.
• The median listing price has gone in a pattern similar to the last six years.
• San Jose-Sunnyvale-Santa Clara, California, has been one of the most thriving markets for the first quarter, with the highest median price (around $1.4 million) and less than 15 days on the market on average.

What Can We Learn From These Trends

It’s important to realize that interest rates play a significant role in nudging these trends in either direction, and they have changed quite radically between 2020 and 2023.

The housing market can take a long time to adjust course and change the direction of its momentum, but higher interest rates may discourage new buyers from entering the market.

That’s because the current housing market offers a relatively unhealthy combination of high prices and high-interest rates, which significantly increases the cost of home ownership.

Let’s say a house is listed for $800,000 on the market. If you get a 30-year fixed-rate mortgage at 4%, you will end up paying about $1,099,800 over the lifetime of your mortgage. But if the interest rates were up by just one percent (5% instead of 4%), the overall cost of your mortgage would go up to $1,236,600. That’s a difference of over $130,800.

So when both interest rates and property prices are high, it discourages sellers from entering the market, and the listed houses sit in the market for longer periods. This pattern can be observed if we consider Q1 2023 to Q1 2022. When the interest rates were a fraction of what they are now, and houses sat on the market for far fewer days (about 30% less than now).

One trend that has persisted in Q1 2023 is that the total number of listings is below the pre-pandemic numbers, and it’s easy to deduce why. The economic uncertainty and the fears of an upcoming recession prevent most people from making major financial decisions like buying or selling a home.

It can take months to close a deal on a property, and a significant enough change in the market conditions when the deal is in progress can spell major financial trouble for at least one of the parties.

Limitations Associated With Trend Observation

It’s important to understand that for most people, who have to make real estate decisions like buying, selling, refinancing, or taking out equity in a specific region, the nationwide trends may offer limited value.

That doesn’t mean these trends are not helpful because they do show you the general direction the market may be taking and what you can expect in the next few months or years. In order to make the most informed decisions, you have to study trends in your own market.

Looking into inventory numbers, days on the market, and recently closed sales in and around your area can give you a good idea of what your property might be assessed for or how much you may have to pay for a property (if you are buying).

Final Words

If you are a homeowner whose goal is to refinance the home or take equity out of their property, you should understand how these loans impact the attitude of banks/financial institutions.

When the market is slow, and there are fewer mortgage originations because fewer people are buying new homes, mortgage lenders might be more lenient towards refinancing or other home equity loans, especially now that the rates are so high.

However, it’s still contingent on fundamentals like a strong credit history and your financials, including your Debt-to-Income (DTI) ratio.