Windermere Chief Economist Matthew Gardner gives an updated look at U.S. home prices and housing affordability in 2023 by examining two key second-quarter reports from ATTOM Data Solutions and the National Association of Home Builders (NAHB).

This video is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. Each month, he analyzes the most up-to-date U.S. housing data to keep you well-informed about what’s going on in the real estate market.

U.S. Home Prices 2023

Hello there, I’m Windermere Real Estate’s Chief Economist Matthew Gardner and welcome to this month’s episode of Monday with Matthew. Today we are going to look at home prices and housing affordability. To do this I will be looking at the second quarter sales price data from ATTOM Data Solutions and we will also look at the just released National Association of Home Builders Housing Opportunity Index for the second quarter.

Are home prices dropping?

Starting with the year-over-year change in sale prices at the state level, there aren’t any great surprises. For the past several months I’ve been saying that as the Western U.S. saw the greatest price growth during the pandemic, so it’s not surprising to see most states sale prices in the quarter below the level seen a year ago. But it was pleasing to see that sale prices in 36 states either matched the level seen a year ago or were higher, and in some instances quite significantly so.

U.S. Home Sale Prices 2023 By State

And when we compare second quarter sale prices to their 2022 peaks, 33 states are at or above the highs seen last year, but most of the Western States have yet to fully recover. In the South, Louisiana is still lagging by a good amount, as is New York State on the East Coast.

But as you are all very aware, all markets are different. I thought it would be interesting to dig a little deeper into the data to see which metro markets have seen significant gains over the past 12 months. It’s going to be interesting specifically because of the fact that mortgage rates have risen so much.

Metro Areas: Home Sale Prices 2023

These are markets where sale prices are far above their 2022 peak sale prices. Now I must add that I only looked at markets where more than 1,000 transactions occurred in the last quarter, which takes out some of the volatility. Notably, even though the state of Virginia’s home prices in the quarter were flat when compared to their 2022 peak, the Roanoke market was up by over 9%. And in Pennsylvania, where state prices were only 1.2% above their 2022 peak, Reading is up by 7.6% and York by 7.4%. And in Georgia, where state sale prices were up a modest 1.6%, homes in Macon have leapt by over 13% and prices are up by 6.9% in Savannah.

But, on the other end of the spectrum, there are markets which are underperforming their respective states and, unsurprisingly, California tops the list with three of their metros seeing prices significantly below that of the state as a whole. In other parts of the country, several metro areas which were relatively affordable before the pandemic saw an influx of remote workers and this led prices to skyrocket, and these will take some time to recover. This is particularly true in the Austin and Boise market areas.

I would add that, of the counties across the country where there were more than 1,000 transactions in the second quarter, half have met or exceeded their prior peak and—of the half where sale prices were still lower—the average shortfall is only around 4% and there are just seven counties in the country where sale prices are down by more than 10% from their 2022 peaks.

Now, what I see in the data is that the U.S. housing market, although certainly not fully healed, is headed in the right direction even when faced with mortgage rates that remain remarkably high. So, with sale prices recovering and still faced with stubbornly high financing costs, what does affordability look like?

U.S. Housing Affordability 2023

Well, according to the National Association of Homebuilders (NAHB), of the 241 metros that they track, just 40.5% of sales in the second quarter were affordable to households making the area’s median income—that’s the second lowest share of sales seen since they started generating this dataset a decade ago. Now, their data does go back to 2004, but the interest rate series that they used to use was discontinued, so it’s not accurate to compare their data today with anything before 2012.

Most Affordable U.S. Housing Markets

These were the most affordable markets in the second quarter and their locations should not be of any great surprise. Average sale prices in these markets were measured around $203,000—that’s just marginally above 50% of the national sale price in the quarter, which was $402,600.

Least Affordable U.S. Housing Markets

And unfortunately this should not surprise you either. On the other end of the spectrum, the top-10 least affordable housing markets were all in California, but it gets worse than that. The top 15 least affordable markets again, all in California, and 19 out of the top 25 were in the Golden State!

As far as I can see, the ownership housing market is still showing remarkable resiliency, especially given that mortgage rates have more than doubled from their lows and they’ve risen from 4.8% at the start of the second quarter of last year to 7% at the end of the second quarter of 2023.

Now, I still expect to see rates starting to slowly move lower as we go through the second half of the year. This will help with prices and, to a degree, affordability, but until we see a significant increase in the number of homes listed for sale, the market is going to remain unbalanced.

As always, I’d love to hear your thoughts on this subject so feel free to leave your comments below. Until next month, stay safe out there and I’ll see you soon. Bye now.

To see the latest real estate market data for your area, visit our quarterly Market Updates page.

About Matthew Gardner

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.

The following analysis of select counties of the Western Washington real estate market is provided by Windermere Real Estate Chief Economist Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact your Windermere Real Estate agent.

Regional Economic Overview

As discussed in the first quarter Gardner Report, job growth continues to slow. Even though Western Washington added 54,391 new jobs over the past 12 months, which represented a decent growth rate of 2.3%, the slowdown in the creation of new jobs is palpable. The regional unemployment rate in May was 3.7%, which is marginally above the 3.4% of a year ago. As we enter the summer months, I have started to ponder the economic outlook for the balance of this year as well as looking ahead to 2024. Although many are still suggesting a looming recession, I remain unconvinced. However, if enough people expect to see an economic contraction, it can become a self-fulfilling prophecy, which has happened in the past!

Western Washington Home Sales

❱ In the second quarter of 2023, 14,997 homes sold. This was down 34.4% from the second quarter of 2022, but up 43.8% from the first quarter of 2023.

❱ The growth in quarter-over-quarter sales was due to the 21.7% increase in the number of homes for sale. While this is positive, it should be noted that inventory levels in the quarter were still 16% lower than a year ago.

❱ Sales fell across the board compared to the same quarter in 2022 but were up in all markets compared to the first quarter of 2023.

❱ Pending sales rose in all counties compared to the first quarter of this year, suggesting that sales in the upcoming quarter may show further improvement.

Western Washington Home Prices

❱ Sale prices fell an average of 7.6% compared to the second quarter of 2022 but were 11.7% higher than in the first quarter of this year. The average home sale price was $773,343.

❱ Compared to the first quarter of this year, sale prices were higher in all counties except San Juan, which, as a small island county, is notorious for its extreme price swings.

❱ The year-over-year drop in sale prices was not a surprise given that the market was peaking due to rapidly rising mortgage rates. That said, prices in Lewis, Clallam, and Skagit counties exceeded those of a year ago.

❱ It was interesting to see list prices rising in all markets compared to the first quarter of the year. Even though inventory levels have risen, sellers still believe that they are in the driver’s seat.

Mortgage Rates

Although they were less erratic than the first quarter, mortgage rates unfortunately trended higher and ended the quarter above 7%. This was due to the short debt ceiling impasse, as well as several economic datasets that suggested the U.S. economy was not slowing at the speed required by the Federal Reserve.

While the June employment report showed fewer jobs created than earlier in the year, as well as downward revisions to prior gains, inflation has not sufficiently slowed. Until it does, rates cannot start to trend consistently lower. With the economy not slowing as fast as expected, I have adjusted my forecast: Rates will hold at current levels in third quarter and then start to trend lower through the fall. Although there are sure to be occasional spikes, my model now shows the 30-year fixed rate breaking below 6% next spring.

Western Washington Days on Market

❱ It took an average of 35 days for homes to sell in the second quarter. This was 20 more days than in the same quarter of 2022, but 21 fewer days compared to the first quarter of this year.

❱ Snohomish County became the tightest market in Western Washington, with homes taking an average of only 18 days to sell. Homes for sale in San Juan County took the longest time to sell at 81 days.

❱ All counties contained in this report saw average days on market rise from the same period in 2022. Market time fell across the board compared to the prior quarter.

❱ The greatest fall in days on market compared to the first quarter was in Clallam County, where market time fell 31 days. Also of note were Pierce, Thurston, and Whatcom counties, where market time fell 25 days.

About Matthew Gardner

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.

Harvard University’s latest edition of “The State of the Nation’s Housing” has arrived, and Windermere Chief Economist Matthew Gardner is here to break down what the data presented in the report means for the U.S. housing market in 2023 and beyond.

This video is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. Each month, he analyzes the most up-to-date U.S. housing data to keep you well-informed about what’s going on in the real estate market.

Housing Market 2023

Hello there, I’m Windermere Real Estate’s Chief Economist Matthew Gardner, and welcome to this month’s episode of Monday with Matthew. I spend a lot of time reading reports that relate to the housing market, but there is one in particular I’m always impatiently waiting for, and it’s published by my colleagues at the Joint Center for Housing Studies at Harvard University. Every year they release the The State of the Nation’s Housing report and it’s packed full of fascinating data about the ownership and rental housing markets, demographics, and it also discusses the challenges that lay ahead. So today, I wanted to touch briefly on just a few of the report’s high points, but I highly recommend you download it from their website.

What’s happening in the housing market?

As we all know, the for-sale housing market started softening in mid 2022 in response to rising interest rates and deteri­orating affordability. What was particularly notable was that season­ally adjusted home prices fell month over month last July and that was the first monthly drop in over a decade. And over in the rental market, asking rents—while still up year over year—also saw their pace of growth slow considerably, and that is a concern.

Is home construction slowing down?

As you see here, multifamily construction continued to rise last year even as rental demand was softening. In fact, 547,000 new multifamily units were started in 2022, the highest number since the mid-1980s, and the 960,000 units under construction in March 2023 was the highest number seen in half a century. On the ownership side, it wasn’t surprising to see single-family construction falling significantly as buyers reacted to sharply higher borrowing costs.

The report also suggested that the decline in new construction was particularly acute for lower-priced homes. Builders just can’t produce entry-level product with current material, labor, and land costs; limited lot availability; and regulatory barriers such as minimum lot sizes that restrict production of entry-level housing production.

U.S. Population Demographics

Now turning to demographics. Population growth—naturally the primary long-term driver of household growth—remains historically low. Overall, the U.S. population grew by 1.26 million people last year, or just 0.38%. Now, while this does represent a slight uptick from previous years that’s really not saying much as U.S. population growth hit 100-year lows in 2019, 2020, and 2021.

Increases in a country’s population come in two ways. The first is “natural” growth—which equals the number of persons born minus the number that have died—and the second is via immigration. Now, gains from immigration can be fickle because they are subject to unpredictable government policy changes as well as economic cycles here in the U.S. as well as in other countries. But natural growth is more predict­able because it is driven by slow-moving factors like birth and mortality rates. Until last year, natural growth had been the primary source of population growth in the U.S., but, as you saw in that last chart, things have shifted.

U.S. Population Growth & Migration

This map shows counties with the highest level of natural growth and it’s dominated by large metro markets in California, Texas, Southern Florida and parts of the Northwest. But, what I found very interesting was that the numbers were remarkably low. Only six counties—three in California, two in Texas, and one in New York—saw natural growth above the 10,000 level and 75% of counties across the country saw negative natural growth.

So with natural growth slowing, states will understand the importance of attracting new residents from other markets as domestic migration will become a more important driver of household growth and housing demand. Here you see that Maricopa County, AZ saw the largest gains from domestic migration but, statewide, Florida dominated last year with 319,000 people moving there. Texas came in second with a net gain of over 230,000 people. But on the other end of the spectrum, California was the biggest loser with net 343,000 people leaving, followed by New York who lost 300,000 residents.

It was international migration that accounted for a full 80% of total growth last year and it was the largest source of total population growth for 26 states and 29% of all counties across the country. The biggest winners were LA County in California, Miami-Dade County in Florida, and Harris County, Texas.

These were just some of the highlights of the report and the biggest conclusions I found were that, in the ownership market, supply will remain tight in the resale arena and new construction will not fill that void, especially as it comes to the entry level product. Housing affordability will not improve. This will continue to be a big issue across the country.

An oversupply of apartments coming online will further moderate rents, but renters will also find affordability to be a big concern. Demographic trends suggest that low domestic population growth going forward will lower new household formations and it’s quite likely that population and household growth will start to rely wholly on immigration earlier than the government expects.

So, there you have it. As always, I’d love to hear your thoughts on this subject so feel free to leave your comments below. Until next month, stay safe out there and I’ll see you soon. Bye now.

To see the latest real estate market data for your area, visit our quarterly Market Updates page.

About Matthew Gardner

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.

Windermere Chief Economist Matthew Gardner revisits his Top 10 Predictions for 2023. Reviewing his forecasts for home prices, mortgage rates, and more, he highlights recent changes in the real estate market and updates his predictions for the near future.

This video is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. Each month, he analyzes the most up-to-date U.S. housing data to keep you well-informed about what’s going on in the real estate market.

Top 10 Real Estate Market Predictions 2023 | Mid-Year Update

Hello there, I’m Windermere Real Estate’s Chief Economist Matthew Gardner and welcome to this month’s episode of Monday with Matthew. You may remember that at the end of last year, I published my Top-10 Predictions for 2023 and, as we hit the mid-year mark, some of you have been asking me how well my forecasts have been holding up. So, I thought it would be interesting to take another look at them to see how accurate they have or have not been! These were the predictions I made last November, and they covered everything from my expectations for home sales and prices to shifting government policies.

U.S. Home Sale Prices

My first forecast suggested that sale prices would fall in 2023; however, I was not expecting any sort of systemic decline in values. Here you can see that year-over-year prices are down by a bit less than 2%, but when you look at how prices have changed month over month, they rose by 3.6% in April and are up by more than 6% since the end of last year.

I stand by my forecast that the median sale price in 2023 will be modestly lower than the 2022 number; and the monthly increase in sale prices that we have seen so far this year also supports my forecast that we are not seeing any long-term decline in home values.

2023 Mortgage Rates

Although mortgage rates have broken above 7% eight times so far this year—the first time because of the banking crisis, and the second because of the looming debt ceiling—I expect them to become a little less frantic as we move through the second half of the year. That said, my call for them to drop below 6% this year is now likely to be inaccurate given where they are today. I still expect them to drop into the “fives” though, but not until early next year.

Is housing inventory increasing?

Listing activity saw a very modest late spring bump, but for perspective, the number of homes for sale is running at about 40% of its long-term average, and I still don’t see much growth this year. Why? Well, by my calculations, there could be over 20 million homeowners with mortgage rates around 3%. Why would they move!

Is 2023 a buyer’s or seller’s market?

And with limited inventory, the market still “technically” favors home sellers. Now, this is a little speculative because what defines a traditional “buyer’s” or “seller’s” market varies by location, but with relatively few homes on the market and the share of homes with price reductions dropping and list prices rising again, I just can’t see a buyer’s market appearing this year.

Are home prices falling?

Well, this doesn’t look to be meeting my forecasts, does it! Sellers have been pretty bullish so far this year, but I would add that this is not true across the whole country. List prices are still down significantly in markets such as Hailey, Idaho; Jasper, Alabama; and Elko, Nevada, where list prices for single-family homes are down between 30 and 50% from their peak. So, I admit that the country has outperformed my forecast for list prices.

Return to Office Statistics 2023

As I had expected, the pace of workers heading back to the office has not been very robust. In fact, the share of people in the office full time dropped to 42% in the second quarter of 2023, down from 49% in the first quarter, that according to The Flex Report. Meanwhile, the share of offices with hybrid work arrangements hit 30% in the quarter, up from 20% the previous quarter. But I still expect to see more workers heading back to their offices, albeit very reluctantly.

New Home Permits and Starts Have Fallen 

With new home permits down 21% year-over-year, and new home starts off by 28%, I think its accurate to say that activity in the new construction sector has slowed. Builders continue to be hit by high financing rates as well as high material prices.

Are U.S. home prices dropping?

As we all know, not all markets are created equal, and this chart shows how far below their 2022 highs some of the country’s metro areas are. On the opposite end of the spectrum, there are some markets where prices have already exceeded the highs seen last year (see map below).

Housing Affordability 2023

Affordability has not improved, mainly due to home prices that remain out of sync with incomes as well as financing costs that remain well above the level that buyers had become used to. I still believe that this will not improve in 2023.

And finally, I told you that governments would start to move to address the significant housing shortage that the country is experiencing, and they have. As you can see, in Washington State, Governor Inslee recently signed House Bill 1110 into law which allows the development of duplex up to six-unit buildings within any area zoned for single-family-only development. Additionally, jurisdictions in a significant number of states are either pursuing legislation to tackle this problem or have at least created task forces to look at the issue. It’s a good start, but more needs to be done.

Although it’s really cheating to grade one’s own work, I think that I have been pretty accurate with my forecasts. Yes, I was too pessimistic when it came to list prices and a little optimistic regarding the direction of mortgage rates. But other than those two items, the data seems to suggest that the housing market is headed in the direction that I had suggested.

What do you think? I’d love to hear your thoughts on this subject so leave your comments below. As always, stay safe out there and I’ll see you all next month. Bye now.

To see the latest real estate market data for your area, visit our quarterly Market Updates page.

About Matthew Gardner

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.

The Federal Housing Finance Authority recently put a hold on raising upfront mortgage fees given pushback that suggested home buyers with good credit were being penalized. Windermere Chief Economist Matthew Gardner looks at Loan Level Price Adjustments (LLPAs) to explain why some headlines were misleading.

This video on the proposed FHFA mortgage fee changes is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. Each month, he analyzes the most up-to-date U.S. housing data to keep you well-informed about what’s going on in the real estate market.

FHFA Mortgage Fee Changes

Hello there, I’m Windermere Real Estate’s Chief Economist Matthew Gardner, and welcome to this month’s episode of Monday with Matthew. As most of you are aware, the Federal Housing Finance Authority announced that they were going to raise the upfront fees for mortgages backed by Fannie Mae and Freddie Mac, and that led to significant backlash from some suggesting that borrowers with good credit would now be paying more than borrowers with bad credit.

And as these voices grew louder, Congress stepped in with House Financial Services Committee Chair Patrick McHenry and Housing and Insurance subcommittee Chair Warren Davidson announcing a plan to repeal these fee increases if they were introduced. Well, this did not go unnoticed, and the FHFA announced on May 10^th that they were putting a hold on a new fee structure in order to engage industry stakeholders and better understand their concerns.

So, for now nothing has changed, but I still think it’s a subject worth discussing because we will see another proposal from the FHFA at some point in the future. So, what’s going on?

Well, periodically the FHFA raises the upfront fees that the Agencies charge borrowers for the purchase and refinance of mortgages that they guarantee, and these fees are called Loan Level Price Adjustments, or LLPAs.

In April of 2022, these fees went up for several types of loans including ones in expensive markets that have a higher conforming loan limit than seen nationally, and they also raised fees on second home mortgages. But to support affordable housing, the lower rates for certain programs including HomeReady, Home Possible, and HFA Advantage weren’t increased. And they didn’t raise fees for loans to first-time home buyers in high-cost areas if they earned at or below the area median income.

And the new round of fee increases that was scheduled to start in May of this year has many believing that it was just another subsidy given to households with lower credit that’s being paid for by households with better credit. But is that really an accurate statement? I don’t necessarily think so.

First off, the FHFA had to increase fees this year simply because they needed the money to cover higher capital requirements that went into effect last year, but that’s a topic for another day. For now, let’s take a look at the changes that would have been made.

Changes to LLPAs

The matrix you see here shows you the difference between the fee that was in place and the one that was proposed. Remember, this is not the actual fee itself, but the spread between the old and new pricing. And, as you can see, on face value it really does look to benefit borrowers with lower credit scores and penalize households with better credit. For example…

Changes to LLPAs: Credit Score 640 – 659

A household with a credit score of between 640 and 659 would see savings across all loan-to-value ranges versus the following:

Changes to LLPAs: Credit Score 740 – 759

A household with a credit rating of 740 to 759 who would be paying the same or more in all bar two scenarios with fees increasing between 0.125% and three quarters of a percent.

But is this really something to be worried about?

There are two things that stand out to me. The first is that a household putting down less than 20% has to buy private mortgage insurance. So, in reality, these households are actually less of a risk to the agencies than those who don’t, so isn’t it right that they should pay less in fees? Secondly, although I can’t disagree with anyone who states that families with lower credit will see fees go down and, generally speaking, they will go up for those with better credit, but people are confusing the CHANGE in the fee with the ACTUAL fee itself.

What I am saying is that low credit borrowers aren’t paying less than high credit borrowers. It’s just the spread in the rates between households with lower credit and those with higher credit has simply gotten smaller.

There is absolutely no scenario where someone with lower credit gets a lower fee. Let me show you.

Loan Level Pricing as of March 1, 2023

This was the new pricing schedule had it actually come into effect. Now let’s say there are two households wanting to buy houses for $500,000 and both looking to borrow 80% of the purchase price.

One buyer has a credit score of 640, so their LLPA would be 2.25% of the loan amount, or $9,000. The other buyer had a credit score of 740 so their fee would be 0.875%. That means the household with higher credit would be paying $5,500 less than the household with lower credit on a $400k loan.

No one is arguing that households with lower credit scores would have paid less in upfront fees, but I actually don’t see a problem with that. Remember, Fannie and Freddie’s mission is, in part, to facilitate access to affordable housing. Moreover, these fees don’t even apply to non-conforming or jumbo loans and they don’t impact FHA or VA loans either.

Although I certainly don’t know where the FHFA will end up regarding fee changes, they will have to do something at some point. I just hope that any modified plan is presented in a way that fully describes the situation and isn’t one that’s able to be interpreted in a manner which allows for headlines that don’t describe the full picture.

As always, I’d love to hear your thoughts on this subject but, in the meantime, stay safe out there and I’ll see you all next month. Bye now.

To see the latest housing data for your area, visit our quarterly Market Updates page.

About Matthew Gardner

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.