Pending home sales fell for the fifth consecutive month in October as rising mortgage rates brought many housing markets to a halt. But now that rates show signs of stabilizing, economists say more home buyers—particularly first-timers—may gradually return to the market.
Still, contract signings dropped 4.6% in October and were down 37% from the previous year, the National Association of REALTORS® reported Wednesday. It was a difficult month for the market as buyers faced 20-year-high mortgage rates, with the 30-year fixed-rate loan eclipsing an average of 7%. Last week, however, the 30-year loan averaged 6.58%, marking the second consecutive week of declines, according to Freddie Mac.
“The West region, in particular, suffered from the combination of high interest rates and expensive home prices,” says NAR Chief Economist Lawrence Yun. “Only the Midwest squeaked out a gain. The upcoming months should see a return of buyers, as mortgage rates appear to have already peaked and have been coming down since mid-November.”
Housing economists are looking ahead to what the next year could hold for the real estate market. Housing activity is still expected to be robust, but home prices are expected to slow their record pace of growth, according to realtor.com®’s Housing Forecast 2023. In fact, realtor.com® predicts, annual price growth could moderate to the single digits—likely around 5.4%—for the first time since 2020.
Realtor.com® also forecasts a 22.8% increase in the supply of existing homes on the market in 2023, which would give home buyers more choices. Home sales, however, are expected to fall 14.1%, reaching their lowest level since 2012, according to realtor.com®. Rents, meanwhile, are expected to surge to new highs in 2023, adding more budget pressures on renter households who aspire to homeownership.
“Compared to the wild ride of the past two years, 2023 will be a slower-paced housing market, which means drastic shifts like price declines may not happen as quickly as some have anticipated,” says realtor.com® Chief Economist Danielle Hale. “It will be a challenging year for both buyers and sellers—but an important one in setting the stage for home sales to return to a sustainable pace over the next two to three years.”NAR will host a virtual Real Estate Forecast Summit on Dec. 13 at noon ET, where Yun and other leading economists will provide a year-end review of the 2022 real estate market and a look ahead at the economy for 2023.