As we head into the fall of 2023, the housing market is showing signs of shifting dynamics. After a typically busy summer, demand is cooling slightly as we approach the holiday season. However, with low inventory levels and continued high demand in key markets, it remains unclear whether this slowdown will be temporary or a sign of a broader market shift. In this forecast, we’ll explore expectations for housing sales, price trends, and buyer behavior in the last quarter of the year, with a focus on national trends and special attention to key markets like Florida, Texas, and California.
One of the major factors impacting the housing market in the fall will be the continued influence of mortgage rates. Throughout 2023, mortgage rates have remained elevated, due to the Federal Reserve’s efforts to control inflation. Freddie Mac reports that the 30-year fixed mortgage rate has held steady at relatively high levels, hovering around 6.5% to 7%. This persistent rate environment is likely to continue into the fall, keeping monthly payments for prospective buyers high. While the summer months typically bring a spike in activity, higher rates are expected to dampen demand for home purchases as affordability continues to be a challenge for many buyers.
As we move into the final quarter of 2023, the cooling effect of high mortgage rates is expected to become more pronounced. For many potential buyers, the monthly cost of a mortgage has risen substantially compared to the same time last year. According to the National Association of Realtors (NAR), the combination of high interest rates and rising home prices has made it more difficult for first-time buyers to enter the market. However, despite these challenges, certain regions are expected to remain strong, driven by low inventory and persistent demand.
Key markets such as Florida, Texas, and California are expected to see continued buyer interest, despite the national slowdown. Florida remains a hot spot for homebuyers, especially in cities like Miami, Tampa, and Orlando, where migration from other states is still strong. The Sunshine State’s lack of a state income tax and its appeal as a retirement destination are likely to keep demand for homes high. Texas, particularly markets in Austin, Dallas, and Houston, has also seen a significant influx of buyers. The state’s relative affordability, strong job market, and business-friendly environment continue to draw people, even as national affordability challenges persist. Similarly, California’s coastal cities, including Los Angeles, San Diego, and the Bay Area, are expected to remain competitive, although higher home prices may limit activity in some areas.
While demand in these regions will continue to support the market, the broader picture for housing sales in the fall points to a slight cooling compared to earlier in the year. The summer months typically see a surge in activity, but as fall and winter approach, buyers tend to pull back due to the holidays, school schedules, and the seasonal slowdown. Lower inventory levels could exacerbate this, leading to fewer homes available on the market and further limiting options for buyers.
On the other hand, the continued scarcity of homes for sale is expected to keep home prices from falling significantly. In fact, national home price appreciation is expected to remain positive, but at a slower pace. While the rapid price increases of the past few years are unlikely to continue, homes in highly desirable areas, such as Florida, Texas, and California, will still command premium prices. According to NAR, home prices are forecasted to appreciate by 3% to 4% through the fall, which is more modest than the double-digit gains seen during the pandemic boom, but still above historical norms.
The lack of available inventory remains a key issue in many markets. As of mid-2023, housing inventory levels are still significantly lower than pre-pandemic levels, limiting the number of homes for sale and putting upward pressure on prices. In some regions, particularly in the suburbs of major cities, inventory is expected to remain tight. Homebuilders have been struggling to keep up with demand, and many homeowners are hesitant to list their homes due to higher mortgage rates on their existing properties. This “lock-in effect,” where homeowners are reluctant to sell and give up their lower mortgage rates, is expected to persist, further limiting supply in the market.
Mortgage lenders are also responding to the market conditions by offering more creative solutions, such as adjustable-rate mortgages (ARMs) and temporary buy-downs, which could make higher mortgage rates more manageable for some buyers. However, with interest rates still elevated, buyers are likely to remain cautious, and some may choose to delay their home purchases until rates decrease or their financial situation improves.
In terms of overall market activity, we can expect a quieter fall compared to the frenetic pace of earlier in 2023. However, low inventory and continued demand in popular markets like Florida, Texas, and California should provide some stability to the market, preventing a significant downturn. The slow pace of home price appreciation is expected to continue, with a slight cooling but no drastic price drops anticipated. Buyers will need to carefully navigate high mortgage rates and competitive bidding situations, while sellers may have to adjust their expectations, especially in markets where inventory is slowly starting to increase.
In conclusion, the housing market in the fall of 2023 will be marked by a delicate balance between cooling demand and the ongoing challenges of low inventory. Nationally, housing sales are expected to slow slightly, but key markets in Florida, Texas, and California are likely to remain strong due to their appeal and the continued demand for homes in these regions. Buyers will face higher mortgage rates, limited options, and rising prices, while sellers may need to adjust their expectations in the face of a more subdued market. As the year progresses, the market’s performance will depend largely on how economic conditions, interest rates, and inventory levels evolve in the coming months.
