U.S. Housing Market Trends 2023

Fitch Ratings Report Highlights Overvaluation

The latest report from Fitch Ratings has shed light on the overvaluation of the U.S. housing market, indicating a scarcity of homes and signaling promising times ahead for builders.

Key Findings

• Overvaluation Estimate: Fitch estimated that home prices were 11.1% overvalued nationally in the third quarter of 2023, showcasing an increase from the previous quarter.

• Metropolitan Areas: Prices in 91% of U.S. metropolitan areas were deemed overvalued, with some areas standing out more than others.

Metro Areas with Highest Overvaluation

According to Fitch Ratings, the most overvalued metropolitan areas include Memphis, Tenn.; Buffalo, New York; Milwaukee; and Indianapolis. On the other hand, markets such as Cleveland, Denver, Los Angeles, Dallas, Miami, and Detroit were considered to have sustainable home prices.

Market Challenges and Trends

While signs of improvement are evident in the housing market, challenges like high mortgage rates and elevated home prices continue to impact affordability. Prospective buyers, especially first-timers, are facing difficulties due to these factors.

Impact on Builders

Despite the challenges faced by buyers, builders are benefiting from the current market conditions as the demand for housing remains high. Sales of newly built homes increased by 4% from the previous year and continued to rise in January.

Conclusion

The U.S. housing market in 2023 presents a mix of challenges and opportunities for both buyers and builders, as reflected in the latest report by Fitch Ratings.

Real Estate Market Trends for Newly Constructed Homes

“The current overall sales market indicates a keen interest in newly constructed homes, while the wider market continues to emerge gradually from a period of stagnation,” as noted in a recent report.

Healthy Demand and Resilient Economy

Builders are seeing strong buyer demand across various demographics. According to Michael Forsum, President and COO of Landsea Homes, the lack of existing supply and a resilient economy are driving this trend. “We definitely have seen an active resurgence in buyer demand coming into the new year.”

Rise in Home Construction-Related Companies

Two exchange-traded funds tracking home construction-related companies, the SPDR S&P Homebuilders ETF and the iShares U.S. Home Construction ETF, achieved new closing highs this week. Notably, cabinet manufacturer MasterBrand and pool-maker Hayward were the best-performing stocks among holdings in the iShares ETF.

Growth Outlook for Single-Family House Construction

The National Association of Home Builders anticipates that construction will begin on 988,000 single-family homes in 2024, representing a more than 4% increase from 2023. According to Robert Dietz, the organization’s chief economist, more than 1.15 million single-family homes need to be built annually to address the nation’s housing deficit.

Impact of Interest Rates

Interest rate cuts would provide a boost to the market. Buyer incentives such as mortgage rate buydowns are common, helping to keep homes selling, albeit potentially weighing on builders’ margins. NAHB projects a decrease in mortgage rates by the end of this year and expects rates to continue declining into 2025, benefiting builders, housing demand, and affordability.