Rising Rates and Increasing Unaffordability: 2023 Housing Market in Review

A buyer purchasing a home at June’s median price of $365,000, with a 20% downpayment and 6.7% mortgage rate, would have a monthly housing payment of $1,884. For the same price, with the same downpayment in June 2022, when a 5.09% mortgage rate was available, the monthly housing payment would be $300 cheaper—a 15.9% difference in overall cost.

The impact of inflation and higher borrowing costs has been felt throughout the housing market. Home sales fell 20.2% year-over-year from August 2022 to August 2023, and the number of new listings fell 9.29% year-over-year from September 2022 to September 2023, based on data from Zillow. The number of active home listings fluctuated between 600,000 and 750,000 throughout the year, with a dip to 560,000 in March. These inventory levels are still far below pre-pandemic levels that regularly topped 1 million, but higher than the lowest levels in 2021 and 2022. Homeowners who took out mortgages when interest rates were two to three times lower than they are now are extremely reluctant to sell, leading to fewer existing homes available in the market.

Strong competition for limited inventory continues to mean that homes for sale do not last long. New construction has helped to fill the gap, making up more of the available inventory than is typical for the market. In August 2023, newly constructed homes comprised nearly a third of the total homes on the market, compared to about 12% historically.

Renters Face Increased Costs, But Rate of Growth Has Slowed

Rents continue to increase, but the rate of increase has slowed to below pre-pandemic rates. According to Zillow, the typical asking rent in October 2023 was $2,011, a 3.2% increase from the same time last year. Before the start of the pandemic in the U.S., year-over-year rent prices were increasing at about 4%. Over the first year of the pandemic, that rate dropped to 1.5% before skyrocketing to 16% in the spring of 2022. The rate of increase has been on a gradual decline since then, as shown in the graph below. This may be due in part to the fact that rental vacancy rates jumped from 5.8% at the end of 2022 to 6.4% at the beginning of 2023 with a significant amount of new multifamily construction coming onto the market. More supply and more vacant units mean that there is slightly less competition for open rentals and typically slower asking rent price growth. However, as home prices remain high, renting is becoming a more financially attractive alternative, so there may be increased demand for rental units in 2024.

Source: Housing Vacancies and Homeownership – Historical Tables (census.gov)

Policy Response

In October, the Biden administration announced actions to improve housing affordability for both would-be and existing homebuyers. These focused primarily on adjusting current housing programs, from allowing homebuyers to leverage income from accessible dwelling units to qualify for mortgages, to making it easier to finance home repairs and renovations with Federal Housing Administration mortgage insurance. These steps build on a plan the administration released earlier this year to fund jurisdictions that work to remove restrictive zoning and land use rules, improve transportation access to housing, and encourage denser housing supply, among other actions.

Yet to more comprehensively address the housing affordability crisis, the Terwilliger Center helped develop a legislative plan, the American Housing Act, that Congress should build on and advance. Drawing from past and current bipartisan proposals, the plan would improve housing affordability using a three-pronged approach—increasing the supply of affordable homes both for rent and sale, preserving the existing stock of affordable homes, and helping families whose incomes do not match their housing costs through “demand-side” supports such as vouchers.

In addition to action at the federal level, some state and local governments have successfully reformed zoning and land use policies that were restricting the density and types of housing that could be built in their communities. As the zoning reform efforts are relatively recent, the full impact of changes remains to be seen. Further, land use reform on its own will not fully address the effects of decades of underbuilding. Policies to support the construction, financing, and preservation of affordable housing as well as those to help low- and moderate-income families afford housing are also necessary.

For more information on the state of housing in the U.S., including regularly updated data on housing supply and affordability, visit the Terwilliger Center’s Housing by the Numbers page.