March 2023: Housing Market Impacted by Limited Supply and Falling Pending Home Sales

Meg Cunningham is a freelance writer specializing in national and state political and policy coverage.

In March 2023, pending home sales in the U.S. experienced their first decline since November 2022, dropping 5.2% amid ongoing challenges posed by high mortgage rates and a shortage of homes available for purchase.

Highlights

• March pending home sales decreased by 5.2%, marking the first monthly drop since late 2022.
• Year-over-year, pending transactions fell sharply by 23.2%.
• Low housing inventory continues to suppress existing home sales nationwide.

According to the National Association of Realtors (NAR), signed contracts for existing homes fell 5.2% in March, with all four U.S. regions experiencing year-over-year declines ranging from 19.8% to 32.2%.

Buyers face uncertainty due to fluctuating interest rates and economic conditions, compounded by limited housing options during the spring and summer homebuying seasons.

"The persistent shortage of homes is a significant barrier to increasing sales," stated NAR Chief Economist Lawrence Yun. "Approximately one-third of all listings still attract multiple offers, and nearly 28% of homes are selling above their asking price. The national housing supply simply isn’t meeting the strong demand."

Regionally, the Pending Home Sales Index dropped 8.1% in the Northeast and 10.7% in the Midwest compared to the previous month, with year-over-year declines of 24.3% and 21.5%, respectively. The South saw a slight 0.2% monthly increase but a 19.8% annual decrease, while the West experienced an 8% monthly gain yet a steep 32.2% drop year-over-year.

Looking ahead to 2024, experts anticipate a market rebound as mortgage rates potentially ease and inflation control efforts stabilize the economy.

NAR projects existing-home sales will improve gradually after March’s dip but will remain below 2022 levels. Sales are expected to decline 9.3% year-over-year to 4.56 million in 2023, followed by a 15.4% recovery in 2024, reaching 5.26 million.

Newly built home sales are forecasted to grow steadily, ending 2023 with a 4.5% increase to 670,000 units, driven by more homes under construction entering the market. Continued gains of 11.9% are expected in 2024.

The NAR also predicts a decrease in the 30-year fixed mortgage rate to 5.6% in 2024, down from 6% in 2023, which could further stimulate housing activity.

Housing starts are projected to decline by 7.3% in 2023 to 1.44 million but rebound with a 6.9% increase to 1.54 million in 2024.

"The second half of 2023 is expected to outperform the first half as job growth continues and mortgage rates become more favorable," Yun added. "New home sales are already nearing pre-pandemic levels and are forecasted to rise, thanks largely to abundant inventory in this sector."

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