At the end of 2022, the housing market was still weakening due to buyers not being able to afford home prices due to the spike in home prices coupled with the rising mortgage interest rates. NAHB Chief Economist Robert Dietz reported that at the beginning of 2023, the 30-year fixed mortgage rate was down from November 2022 to 6.5% from 7.1%.
NAHB believes that around 18 million households have been priced out of the current market. The decline in affordability is clearly reflected in current housing sales statistics: The volume of existing home sales in November 2022 was 35% lower than in November 2021. The Census data shows that new home sales were down 15% on a year-to-date basis.
Along with the pricing and interest rate comes low inventory. More construction is needed over a long-term period. According to the National Association of Home Builders, their new study reports that the current housing market is underbuilt by 1.5 million homes. Single-family builder sentiment, which is measured by the NAHB/Wells Fargo Housing Market Index (HMI), has been falling every month since December 2021. Unfortunately, this has been the lowest reading they have seen since 2012 and close to 62% of builders are offering some form of sales incentives to entice home buyers.