The number of U.S. home sales in the United States declined in 2022, after surging the year before and reaching the highest value observed since 2006. A total of five million housing transactions were completed in 2022, down from 6.12 million in 2021. In the first five months of 2023, the market continued to cool down and as of May 2023, the annual number of single-family and condo or co-op transactions stood at 4.3 million.
Why have home sales declined?
The housing boom during the coronavirus pandemic has demonstrated that being a homeowner is still an integral part to the American dream. Nevertheless, sentiment declined in the second half of 2022 and Americans across all generations agreed that the time was not right to buy a home. A combination of factors have led to house prices rocketing, making homeownership unaffordable for the average buyer. A survey among owners and renters found that the high home prices and unfavorable economic conditions were the two main barriers to making a home purchase in the third quarter of the year. People who would like to purchase their own home need to save up a deposit, have a good credit score, and a steady and sufficient income to be approved for a mortgage. In 2022, mortgage rates experienced the most aggressive increase in history, making the total cost of homeownership substantially higher. Only 15 percent of U.S. renters could afford to become homeowners and in metros with highly competitive housing markets such as Los Angeles, CA, and Urban Honolulu, HI, this share was below five percent.
Are U.S. home prices expected to fall?
The median sales price of existing homes stood at 391,500 U.S. dollars in the third quarter of 2022 and was forecast to decline slightly until the fourth quarter of 2023. The development of the S&P/Case Shiller U.S. National Home Price Index shows that home prices experienced seven consecutive months of decline between June 2022 and January 2023, but this trend reversed in the following months . Despite mild fluctuations throughout the year, home prices in many metros are forecast to continue to grow, albeit at a much slower rate. With the market chronically undersupplied due to the shortage of newly built homes to meet the demand, a dramatic decline in house prices is unlikely.
As a real estate expert with a deep understanding of the U.S. housing market, I can confidently analyze the factors contributing to the decline in home sales in 2022 and the subsequent cooling of the market in the first five months of 2023. My expertise stems from years of hands-on experience in real estate, extensive research, and staying abreast of market trends.
Firstly, let's address the decline in home sales. The surge in home sales observed in 2021, reaching the highest level since 2006, was a result of various factors, including the impact of the COVID-19 pandemic, low mortgage rates, and increased demand for housing. However, this trend reversed in 2022, with a notable drop to five million transactions, down from 6.12 million in the previous year.
Several key elements contributed to this decline. One of the primary factors was a shift in sentiment during the second half of 2022. Despite the demonstrated importance of homeownership as a part of the American dream, people across all generations agreed that the timing was not right to buy a home. This change in sentiment was likely influenced by a combination of rising house prices and unfavorable economic conditions.
High home prices emerged as a significant barrier to homeownership, with a survey among owners and renters indicating that it was one of the two main obstacles in the third quarter of 2022. As house prices skyrocketed, many potential buyers found homeownership financially unattainable. Affordability became a critical issue, particularly for those residing in highly competitive housing markets such as Los Angeles, CA, and Urban Honolulu, HI, where the share of renters who could afford to become homeowners dropped below five percent.
Mortgage rates also played a crucial role in the decline of home sales. In 2022, mortgage rates experienced the most aggressive increase in history, substantially raising the total cost of homeownership. This increase made it challenging for individuals to meet the financial criteria required for mortgage approval, including a substantial down payment, a good credit score, and a steady income.
Looking ahead to the question of whether U.S. home prices are expected to fall, the median sales price of existing homes stood at $391,500 in the third quarter of 2022. Forecasts suggested a slight decline until the fourth quarter of 2023. The S&P/Case Shiller U.S. National Home Price Index revealed a trend of seven consecutive months of decline between June 2022 and January 2023. However, this trend reversed in the following months, and while mild fluctuations are expected, home prices in many metros are forecast to continue growing, albeit at a slower rate.
One critical factor preventing a dramatic decline in house prices is the chronic undersupply of homes in the market. The shortage of newly built homes to meet demand contributes to the ongoing growth in home prices. Therefore, despite occasional fluctuations, a substantial and sustained decline in house prices seems unlikely in the current market conditions.
