January 2023 Home Sales Report High Prices and Low Affordability Hamper January Home Sales Date: February 21, 2023
January 2023 at a glance
Wisconsin
existing home sales fell 33.8% in January 2023 relative to January 2022, and the
median price of homes that closed in January rose 8.5% over that same 12-month
period to $250,000.
The slide
in January home sales continued a trend that first emerged in the fourth
quarter of 2022. While home sales in the first nine months of 2022 fell 8.8%
compared to the first nine months of 2021, they slid 30.1% in the fourth
quarter of 2022 compared to that same quarter in 2021.
Although
mortgage rates have fallen from peak levels in October 2022 when they averaged 6.90%,
they remained relatively high in January 2023 at 6.27%. Note that this compares
to a rate that averaged just 3.45% in January 2022.
Inventories
remained very low, which kept upward pressure on home prices. At just 1.9
months of available supply, which is unchanged from a year earlier, the weak existing
home market is still classified as a seller’s market since it is well below the
six-month benchmark that characterizes a market that is balanced. Larger
metropolitan markets have the most sales activity and the most limited supply
at just 1.8 months, but even the less densely populated rural areas have very
weak supply at only 2.6 months.
New
listings are down 26.2% compared to January 2022, and total listings are 16.2%
lower than their levels 12 months earlier.
Affordability
continues to be the primary reason that demand is so weak.
The Wisconsin
Housing Affordability Index measures the percent of the median-priced home that
a household with median family income can purchase, assuming a 20% down
payment, and a 30-year fixed-rate mortgage at current rates financing the remaining
balance. The index fell from 212% in January 2022 to 150% in January 2023, a
reduction of 29.2% over the last 12 months.
Analysis from the experts
Tight Inventories and High
Mortgage Rates Hurt Affordability
"In late
October, 30-year fixed mortgage rates hit a weekly average of just over 7%, so
it’s good to see them start coming down. However, we will need to see both
lower mortgage rates and lower price pressure before there is appreciable
improvement in housing affordability in the state."
Joe Horning, 2023 Chairman of the Board of Directors, Wisconsin REALTORS® Association
Fed Likely to Continue Moderate
Rate Hikes
"After starting the first half of 2022 with slight
negative growth of real inflation-adjusted GDP, we saw a rebound in the second
half of the year with real GDP growth at 3.2% in the third quarter, and
preliminary estimates of 2.9% growth in the fourth quarter. Taming inflation is
the Fed’s number one priority, and it can now continue to make short-term interest
rate hikes without fearing the economy will slip into recession. The Fed has
signaled these hikes will likely be smaller than the very aggressive three-quarter-percent
increases in the Federal Funds rate we saw in 2022."
Dave Clark, Marquette University Economist and WRA Consultant
Inventory Weakness Is a Stubborn
Problem
"We’ve been in a seller’s market for nearly six
years and a strong seller’s market with less than four months of supply for the
last three years. It’s a complicated problem because there is still unmet
demand from millennials and now Generation Z buyers, even with relatively high
mortgage rates. Unfortunately, we will need to see the supply side improve
before sales begin to recover."
Michael Theo, President & CEO, Wisconsin REALTORS® Association