Home prices remain near all-time highs, largely due to the sustained low inventory levels, and despite the average 30-year mortgage rate hitting a 23-year high in October at 7.79%. It’s hard to overstate the full significance of higher mortgage rates on the housing market; but, in short, they are the primary driver of market slowdown. For example, when accounting for the cost of financing a mortgage, a buyer’s monthly cost for a median home today is actually 11% higher than in June 2022 when prices were at their peak. Looking further back to when the Fed began to raise rates at the beginning of 2022, the median monthly cost of a home has increased 76% from then until now.
So why have prices stayed elevated even as the cost of financing has skyrocketed over the past 22 months? For sellers, prices have to stay high or else they wouldn’t enter the market. Approximately 75% of U.S. homeowners have mortgage rates of less than 4%, according to JPMorgan, which has kept sellers from entering the market. If prices broadly contracted, even fewer sellers would come to market because they likely couldn’t afford a new house because their profit margin would be too low. Although people move for all sorts of reasons, generally speaking, there are very few sellers who are selling because they have no choice. Even if sellers were breaking even on their home sale, transitioning from a sub 4% mortgage to a nearly 8% rate is completely unappealing. Sellers who are coming to market now need to make a profit so that they can finance less of their next home in order to counteract the higher mortgage rate. Of course, this is for existing homes, but new construction isn’t much different. Material and financing costs are higher for homebuilders, too, and when a house costs more to build, the prices increase as well.
Inflation isn’t helping the market, either. People feel less wealthy than they did three years ago, and they’re right to feel that way. In just the three years from September 2020 to September 2023, the dollar has lost about 15% of its buying power, the same amount it lost over the preceding 10 years (September 2010 to September 2020). Even though inflation is declining, all that means is that prices are rising more slowly than last year — which is good, but it doesn't make anything more affordable. The combination of declining purchasing power and higher mortgage rates only reduces market participants, slowing the market.
High mortgage rates aren’t going away anytime soon because inflation is still about twice as high as the Fed would like. So far, most of the economic slowing the Fed intended by raising rates seems to be isolated to the housing market. The National Association of Realtors (NAR) reported that the number of homes sold dropped 2.0% month over month and 15.4% year over year to the lowest number of sales in the four years that NAR reports. Real GDP rose significantly in Q3 2023, indicating strong U.S. economic growth rather than economic slowdown. It’s unlikely that the Fed will hike rates at the December meeting, and very unlikely that they will reduce rates in the near future. We can expect mortgage rates between 7% and 8% in 2024, which will continue to slow the market.
Different regions and individual houses vary from the broad national trends, so we’ve included a Local Lowdown below to provide you with in-depth coverage for your area. In general, higher-priced regions (the West and Northeast) have been hit harder by mortgage rate hikes than less expensive markets (the South and Midwest) because of the absolute dollar cost of the rate hikes and limited ability to build new homes. As always, we will continue to monitor the housing and economic markets to best guide you in buying or selling your home.
Big Story Data
The Local Lowdown — Miami-Dade, Broward, and Orange Counties
The median Miami-Dade County single-family home price hit an all-time high in October. Prices in every market are still near their record highs, and we expect prices to remain fairly stable in the fourth quarter.
Active listings rose in the selected Florida markets in October. Any inventory growth is great for the undersupplied Florida markets. Only Broward and Orange condo inventory has increased significantly since the start of 2022, and even they are still undersupplied.
Months of Supply Inventory indicates the market is slowly shifting toward balance, but it is still a sellers’ market. It’s common for the market to trend toward balance in the fall and winter, when fewer buyers are in the market and sales slow.
Note: You can find the charts/graphs for the Local Lowdown at the end of this section.
Prices hit all-time highs for single-family homes in Miami-Dade County
In Florida, home prices haven’t been largely affected by rising mortgage rates — even reaching all-time highs during a period of rapidly rising mortgage rates. In October, the median single-family home price in Miami-Dade reached a new all-time high, while prices in Broward and Orange are slightly below their peaks. Condo prices have contracted over the past three months, but minor price contraction is normal in the fall and winter. Although price growth has slowed across most of the selected markets, we expect prices to remain fairly stable for the rest of the year. New price peaks are rare in the fall and winter, but if any market in the country can do it, it’s in Florida.
Typically, demand begins to decline in the fall and bottoms out in January, so the consistently low supply should be less of an issue. With mortgage rates at a 23-year high, buyers have more incentive to compete over the most desirable homes. Because of the cost of financing, homebuyers aren’t settling for less than the best home they can find.
Inventory increased across the selected markets in October
Single-family home and condo inventory have bucked typical seasonal trends since the pandemic began and people rushed to move to Florida. Typically, inventory peaks in July or August and declines through December or January. Broadly, inventory has barely increased at all this year, which highlights the desirability of the selected markets. However, more new listings have been coming to the market, especially in Miami-Dade and Broward counties, causing inventory to increase across the selected markets in October. Even though inventory technically increased this year, it’s still historically low, moving higher primarily due to softening demand (fewer sales) caused by higher interest rates and low inventory. Any increases in supply are good for the market, and we hope to see more new listings during the winter months.
Even as demand slows, sellers are maintaining more negotiating power than at the start of the year. In October 2023, the average seller received 2-3% more of their listed price as compared to January. That being said, the average buyer is paying 92-95% of list price, so both buyers and sellers should expect the sale price to be less than the list price in most cases.
Months of Supply Inventory indicates the market is trending toward balance
Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes listed on the market to sell at the current rate of sales. The long-term average MSI is around four to five months in Florida, which indicates a balanced market. An MSI lower than four indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while an MSI higher than five indicates there are more sellers than buyers (meaning it’s a buyers’ market). MSI fell significantly in the first quarter, then gently trended higher starting in June. MSI for single-family homes still suggests a sellers’ market in Broward and Orange, while Miami-Dade has shifted to a balanced market. For condos, MSIs indicate that Orange is still in a sellers’ market, Broward is balanced, and Miami-Dade is in a buyers’ market.