Welcome to the latest installment of The Full Measure with Kevin Hecht. Uncover current economic trends and insights—written from an appraiser’s standpoint—in this mid-year analysis for 2023.
As we hit the mid-year mark of 2023, it’s time to assess the real estate industry’s performance so far. It has been an eventful year, with various economic factors to evaluate as we head into the latter half. The forthcoming Federal Open Market Committee (FOMC) meeting, prospective interest rate hikes, robust employment figures, and slowing inflation all hint towards economic stability. However, high mortgage rates and limited affordable inventory keep exerting pressure on potential homebuyers. Unless there are improvements in affordability and inventory, the market dynamics will likely stay consistent.
Key economic updates: Midyear 2023
Inflation and its impact on the real estate sector
The inflation rate has been trending downward recently, with June 2023 witnessing the smallest annual increase since March 2021. The Consumer Price Index (CPI) rose by 0.2% in June, representing the fourth instance in seven months when the monthly growth in CPI fell below the Federal Reserve’s annualized 2.2% target. This marked its slowest annual growth rate of 4.8% since October 2021. If this trend persists, we may see the annual rate of change dip to a low of 1.9%, a level last seen in February 2021.
Despite the broader deceleration, housing inflation remains a primary contributor to overall inflation, responsible for over 70% of the headline inflation increase. However, the Federal Reserve’s ability to tackle rising housing costs is constrained by the scarcity of affordable supply and escalating development costs.
Home sales overview
June witnessed a decline in existing home sales to the lowest level since January, as reported by the National Association of Realtors (NAR). Limited inventory coupled with fluctuating mortgage rates drove a 3.3% decrease to a seasonally…