U.S. Home Sales Rebound May Stall as Prices and Interest Rates Rise

According to the National Association of Realtors (NAR), sales of existing (not new) homes in America fell from 7.08 million units in 2005 at the peak of the last boom, to 4.12 million in 2008 at the bottom during the last recession. For 2022, 5.03 million units were sold, down from 6.12 million units in 2021 and 5.64 million in 2020. In April 2023, the median price of a newly built home had soared to $503,300, up from $310,000 three years earlier. This means that affordability has become a very significant issue, as higher prices mean both larger down payments and higher monthly mortgage payments. 2022-2023 increases in mortgage interest rates compounded this problem.

The U.S. Census reported homeownership rates (that is, the percentage of households living in homes that they own) in 2022 at 65.8% (compared to 65.5% in 2021). 2006 saw homeownership at its highest point in history, at 68.9%.

According to the National Association of Home Builders, the average new home size was about 2,600 square feet in 2018. The average fell to about 2,310 square feet in the first quarter of 2022. High construction prices are likely to restrain average home size over the mid-term. New home sizes may increase in the aftermath of the Coronavirus pandemic, with more people electing to work from home permanently, and needing dedicated space for that purpose.

Investor purchases now account for one out of every seven homes sold. Investors are taking advantage of low home inventory, and betting that families who are unable or unwilling to buy will rent instead. In addition, investors are hoping to gain from home appreciation over the mid- to long term. In many cases, homes for middle class families are snapped up by major home investment companies—some of which have purchased tens of thousands of homes across America. Such companies rent out these homes. They have computer programs that help them know exactly what to pay, what improvements to make, and what rents to ask. This business practice makes it even harder for families to find their own homes to buy. A new, related trend is for thousands of new homes to be built yearly, not for sale to families, but specifically for the rental/investment market.

Investors generally offer cash (non-mortgage) deals and quick closings. In fact, in the most popular housing markets, facing shortages of homes for sale, sellers often hold out for cash deals, above their asking prices, with no appraisals or property condition inspections involved. Bidding wars often ensue for homes in popular neighborhoods, and buyers must be in a position to react quickly to sellers’ demands.

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U.S. Home Sales Rebound May Stall as Prices and Interest Rates Rise, Business and Industry Trends Analysis

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