Just how bad was 2023 for the housing market?

RIP 2023 — Whew, that was a year none of us would like to live through again. Chances are, we won’t have to anytime in the next few years.

How bad was last year?

RealTrends has been tracking housing market data since 1979, including households, home sales, average mortgage rates, etc. One of the most important calculations we do each year is measure the percentage of all households that purchased a home, whether new or existing, in a given year. Over the past 40+ years we have tracked this figure, the average percentage of all households (renter and owner-occupied) that purchased a home each year was 4.78% and the median was 4.64%.

The factor for 2023 was 3.58%. This factor has not been this low since the recession year of 1981. Even during the downturn of 2006-2010, this factor only hit a low of 3.84% (2010).

Another startling fact was that 2023 saw just over 4 million existing home sales. That was almost exactly the number that traded hands in 1979. However, in 1979 there were only 80 million households in the United States. As of the end of 2023, there were an estimated 131 million households — 51 million more households in the country and the industry saw the same number of existing home sales.

That is how bad 2023 was for those of us in this business.  For example, were we to have sold the number of homes indicated by the long-term average, 4.78%, that would have generated over 6.2 million existing home sales.

What about the next few years?

Mortgage rates are not likely to return to the 3.0% range any time soon, but forecasts call for a range of between 4.5% and 5.0% over the next few years (2-2.5% above the general inflation rate).

Existing home prices as of the end of 2023 trade at 4.73 times the median household income, which is 12-13% above the long-term average (40-year average of average existing home price is 4.2 times the median household income). 

There is one large factor that is hard to measure. Is the desire among Millennials and Gen Z to own their own home still as strong as it has been in the past?

Will that desire overcome the higher interest rate environment, higher home prices and the scarcity of inventory to move the level of homebuying back to historical averages?

These are some of the big unknowns the industry must face in the future.

Steve Murray is the founder and partner of RTC Consulting and a senior advisor to HW Media.