Housing Market 2023: Predictions and Strategies

This piece originally appeared in the March 2023 edition of DS News magazine, online now.

Prior to 2022, analysts across most markets predicted a continued run of good fortune. Perhaps it was denial or simply the hope that the Federal Reserve would achieve the soft landing that (so far) eludes us. No matter the root cause, analysts saw their hopes shatter as, for example, consensus estimates of the S&P 500 striking 5,225 by year’s end fell short by more than 40%.

A confluence of factors spun together to create the perfect economic storm we’ve experienced: rampant inflation, geopolitical uncertainty, nearly a decade-long bull run, overinflated valuations, and (perhaps most devasting) a series of rate hikes marking the end of the pandemic era’s environment of cheap debt and soaring investments.

What Happened in Housing?
Anyone paying attention could have predicted the impact of rate hikes, especially on the housing market. Rock-bottom rates led to a 50-year low in fixed-rate mortgage average at just below 2.7%, while supply chain chokepoints led to a housing supply shortage, and economic stimulus led to soaring home prices as investors speculated wildly which drove values upward. And, as with most other markets, the fall happened nearly as fast as the meteoric rise.

Logistics caught up, and new starts began again. Economic uncertainty and the highest fixed-rate mortgage average since 2000 (6.95%) caused supply to catch up and surpass demand.

The few who could sell at the top considered themselves lucky as home sales slumped, the median days on the market for home sales doubled, and prices for homes that did sell dropped by nearly 30% in less than six months.

The housing slump is easily the economy’s most significant casualty in the Fed’s fight against inflation—even if the full scope isn’t yet apparent.

Volatile equities can generally be counted

The original article can be found here