Stability Amid Uncertainty: Why the Housing Market Will Not Collapse in 2023

As the economic landscape continues to shift and adjust, it is natural to question the stability of the housing market. Yet, despite the cloud of uncertainty, it appears that the 2023 housing market is not poised for collapse. Several factors contribute to this buoyancy, including the hesitation of homeowners to list their homes, stricter credit accessibility, low rates of mortgage delinquency, robust home equity, and a lean inventory of homes for sale. Let’s delve into these components that underscore the market’s resilience.

1. Homeowner’s Hesitation to Sell

The stability of the 2023 housing market is bolstered by the reluctance of homeowners to sell their homes. A drop of 22% in the volume of U.S. existing home sales was noted in March 2023 compared to the previous year. Many homeowners are committed to low-rate mortgages and are wary of forfeiting these advantageous rates to buy a pricier home financed at a higher rate. As affordability hits record lows, homeowners are exploring alternative avenues to unlock their home equity, such as funding home improvements, bolstering retirement or savings funds, or settling high-interest debts*.

2. Stricter Access to Credit

Compared to the pre-2008 financial crisis era, credit availability in 2023 is decidedly more limited. The easy loan access of the past has been replaced with a more conservative approach, avoiding the mistakes that led to the previous financial crash. Risky mortgage products, which allowed those with poor credit scores to secure loans, have been phased out. The dominant product now is the 30-year fixed mortgage, providing a safer option for both borrowers and lenders*.

3. Reduced Mortgage Delinquency Rates

In 2023, mortgage delinquency rates have been recorded at a low, indicating a healthier financial climate for both homeowners and lenders. This decrease is primarily due to the fact that lenders are focusing on providing loans to those with excellent credit scores, resulting in better quality loans and subsequently lower default rates*.

4. Record Levels of Home Equity

In 2023, U.S. homeowners are sitting on record levels of home equity, which significantly contributes to the overall stability of the housing market. This financial buffer puts homeowners in a stronger position compared to the 2008 period, enabling them to sell their properties profitably if needed. The increase in home equity has also reduced the number of distressed sales, with such transactions making up only 1% of sales in January*.

5. Limited Supply of Homes

The reduced supply of homes on the market also adds to the robustness of the 2023 housing market. In March, new home listings were down approximately 20% year-over-year and were almost 30% below the pre-pandemic levels of 2017 to 2019. This inventory shortage, paired with heightened demand, has been a major driver of home price increase*.

Nevertheless, the housing market is a multifaceted system influenced by various factors. For a significant drop in home prices, a confluence of factors such as shifts in inflation, affordability, interest rates, and supply among others would need to occur*.

As we look ahead, the overall sentiment in the housing market remains positive, particularly in the area of home equity investments. The guarded optimism displayed by Institutional Real Estate Investment Trusts (REITs) as they add Home Equity Investments (HEIs) to their portfolios, suggests a confidence in the continued strength of the housing market*.

*https://appraisalbuzz.com/here-are-five-reasons-why-we-wont-see-a-housing-market-crash-in-2023/