Housing market predictions for the fall

With Labor Day behind us, in just a few short weeks it will officially be fall.

Typically that means things slow down in the real estate market. Demand wanes as the kids settle in at school, and sales, prices and bidding wars all start to drop.

Is that something we can expect as we head into autumn? Here’s what the pros — and data — have to say about this fall’s housing market.

Mortgage rates have been trending upward since early last year, and just last week, they reached their highest point in over 20 years — a whopping 7.09% on the average 30-year fixed-rate loan.

Fortunately, most experts don’t expect things to continue on that trajectory. This is because the Federal Reserve is expected to stop increasing its benchmark interest rate within the next few months — a big influence in the higher mortgage rates of late. 

“A pause by the Fed should prevent further creep,” says Budge Huskey, CEO and president at Premier Sotheby’s International Realty. Still, he says, “It’s anticipated [mortgage rates] will remain in the 6% range through the rest of the year.”

According to Realtor.com, the rates could in fact get all the way down to 6% by year’s end. Fannie Mae predicts an average 6.7% rate by that time, while the Mortgage Bankers Association expects 6.2%.

The supply of for-sale housing is incredibly low. In fact, according to real estate brokerage Redfin, total inventory was an all-time low in June, dropping 15% compared to just one year earlier. 

Because of this meager supply, existing home sales fell by about 2% in July, according to Realtor.com. New home sales, on the other hand, were up 4.4% for the month and a whopping 31.5% over the year. Amit Arora, vice president of investments for Opendoor, expects this trend to continue into the fall.

“Prospective homebuyers are turning to new construction as a way around low inventory,” Arora says. “Builder confidence for newly-built single-family homes rose in July 2023, so we can expect more buyers to leverage builder incentives. The supply chain continues to be a challenge, but builders are seeing it somewhat normalizing in most markets and believe that it will likely remain as such through 2023.”

While new home construction is actually on the rise, the supply of existing homes likely won’t improve for some time — and that comes back to mortgage rates. According to Zillow, 80% of homeowners have a mortgage rate under 5%. Few are willing to trade those low rates for today’s much-higher 7%-plus ones.

As a result, Realtor.com predicts sales will continue to decline throughout the year, notching total sales of about 4.2 million across 2023 — a 16% decline compared to 2022 and the smallest annual total since 2012. 

“It’s commonly believed that far more sales would be possible if inventory levels were closer to what is considered normal,” Huskey says. 

Low inventory also plays a role in home prices. With so few homes for sale, buyers must compete, which drives up pricing and keeps the housing market afloat. 

Because of this — and the lack of inventory, which is expected to persist for some time, most pros expect home prices to moderate or drop only slightly by year’s end.

“We experienced an unprecedented boom in home values in 2021, and the cooling of this gave many fears that we were headed for a crash,” says Maureen McDermut, a real estate agent at Sotheby’s International Realty. “However, this turned out to be unfounded.”

Realtor.com expects overall home prices to fall 0.6% by the end of 2023 (compared to one year ago). Fannie Mae predicts a 3.9% increase over the year. 

These are just national estimates, though, and home price trends tend to vary widely from one location to the next. In some markets with high levels of demand and low inventory (a seller’s market), prices could rise more. In others, where inventory is in or demand is particularly low (a buyer’s market), prices could fall.

As Huskey puts it, “There are areas where price reductions and greater negotiations are common, and others where quality listings are receiving multiple offers — still reaching beyond list price.”

Things are slowing down in the housing market as we head into fall, but that doesn’t mean a housing market crash, nor does it mean mortgage rates will go back to the record-low rates of yesteryear.

Instead, it likely means a more balanced market — one where affordability improves slightly, at least for next few months. 

“My advice to home buyers is to not focus on the short-term ups and downs,” Amora says, “especially if they are buying a home they plan to live in for an extended period of time. Instead, evaluate the home based on your needs and budget. If you can afford the monthly payments and it checks all your boxes, there shouldn’t be much else stopping you.”

Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.

This article was originally published on SFGate.com and reviewed by Lauren Williamson, who serves as Financial and Home Services Editor for the Hearst E-Commerce team. Email her at [email protected].