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Recession in 2023? Feb 2023 Housing Market Report

Feb 2023 Housing Market Report

Posted Feb 2023

Home prices, both nationwide and at the local level are really sensitive to macroeconomic news, the chief of which (at least right now)is the possibility of a recession.

Let’s take a look at the macroeconomic indicators that affect the housing market.

My five national macro indicators are:

  • The overall economic activity
  • Interest rates, specifically those related to mortgage loans
  • The volume of mortgage applications;
  • Foreclosures; and
  • Nationwide home-price indices.

First, the overall economy. Conference Board, an economics forecasting consultancy, publishes its broadly-used monthly Index of Leading Economic Indicators, based on 10 measures, which include indicators of manufacturing activity, the labor market, investor and bankers’ sentiments, the yield curve, consumer confidence, and construction of new housing. And its verdict is: there is going to be a recession this year!

The Chicago Fed National Activity Index is also pretty negative.

But wait! Have you seen the latest BLS report? Jobs in January rose by 517,000.

Job growth was widespread, led by gains in leisure and hospitality, professional and business services, and health care. This job growth is well above the previous 12-months average, but keep in mind that the labor force participation rate is still a full percentage point lower than before the pandemic, even though it has been increasing.

Consumer spending is showing signs of strengthening, weak signs of strengthening, to be sure. We don’t have the January numbers from the Bureau of Economic Analysis, but Bank of America has reported a strong increase in credit- and debit-card spending in January.

Despite this slightly positive news and the fact that some of my economists colleagues think we may even see a continued, if mild, growth this year; in my opinion, a recession is still very likely. Monetary tightening works with a lag. According to academic studies, the lag is usually about 18 to 24 months. And if you remember, the 8 rounds of monetary tightening started 11 months ago, in March of last year.

According to the Atlanta Fed President Raphael Bostic, “it takes businesses and consumers time to recognize, feel, and act on changes in financial conditions.”

So, buckle up, America, just in case we have a bumpy ride.

Now, since this channel is about real estate markets, a logical question for you to ask is, should I then wait until after a possible storm to buy a house. Not necessarily. First, I’m not predicting a storm, just possibility of a probably mild recession. Second, home prices move a little differently from the rest of the business cycle. Feel free to email me at, if you have a specific question.

Second, the interest rates. Despite the Fed’s plans to continue raising the benchmark rate further, the latest average 30-year fixed rate is at a moderate 6.12%.

This is nearly 1 percentage point lower than the high of 7.08% in November. Plus, inflation has been cooling for the 7th straight month. Given this news, it’s no wonder that the Mortgage Bankers Association has reported spikes in mortgage loan applications in the first several weeks of 2023.

Speaking of mortgages, are people falling behind on their mortgage payments? A sharp increase in foreclosures can be a harbinger of a collapse in the housing market. ATTOM’s latest data for the 3rd Quarter of 2022, reports a 1 percent increase from the previous quarter and a massive 167 percent from a year ago.

OK, no need to panic! I know, 167 is a lot, but that’s in percent change, which can appear huge if you start from a relatively low number. In terms of levels, in other words in raw numbers, foreclosure starts rose to only 67K for the entire United States of America. To give you a quick point of reference, there were 15M approved mortgage loans in 2021 alone. Let’s zoom out a little.

You see this “huge” spike in foreclosures is still way below the levels we’ve seen during the great meltdown of 2008.

And finally, while real estate is hyper-local by nature, it still helps to watch the national averages. The Case-Shiller Index is down again, for the 5th consecutive time.

Redfin is also showing a moderate decline.

However, Zillow has remained relatively flat.  

But just like I said, real estate is hyper-local by nature. So, for a meaningful analysis of the housing market trends, we have to look at price changes and other housing market indicators on a local level. My massive dataset is specific to Palm Beach County FL, and it’s granular, down to individual listings and home sale transactions. And while price levels here in South Florida may differ from home prices in other parts of the country, the trends or changes in prices, are very generalizable to most other markets.

So, is this a buyers’ or sellers’ market? Let’s have the two sides of the market face each other off, in a contest based on my 5 housing market indicators.

Let’s start with Price Trends. Here is what’s happening with house prices in Palm Beach County right now.

Clearly, the trends are … well, anything but clear! There is no clear decline, nor a rise in home prices. So, the score is zero-zero.

Days on the Market measures how quickly homes get snapped up by buyers.

And my most recent data for January 2023 show that DOM is down, quite significantly down! Again, as I explained in my last month’s market report, the latest DOM is initially downward biased. But still, DOM is very clearly down! Sellers open the score!

How many homes were able to sell above the asking price? Not many.

We are way down from the pandemic levels. We are in the 9th (!) month of consecutive drops in this measure. This point goes to Buyers.

Percent of Listings that Lowered the Original List Price.

This chart shows the proportion of listings that wanted to push the price and “test the market” but then reduced the original list price. And since October 2022, after 5 months of the post-pandemic “back to normal” hike, fewer listings reduced the initial asking price. Sellers score again.

And finally, cash purchases have been surging recently. In January 2023, the share of cash purchases was at 56%, or about 8 percentage points higher than in August of 2022.

If you’re a seller, having more buyers flush with cash is always a boon. Conversely, if you’re a buyer, you want your competition to be weak, poor, deficient. Sorry, I got carried away. So, sellers clinch the victory with the final score of 3:1.

I know, and you know, and I know that you know, and I know that you know that I know (look up “Common Knowledge”) that my scoreboard isn’t perfect because there is no theoretical or empirical reason to give equal weights to all indicators. But still, I think it’s helpful to visually summarize the 5 housing market indicators, to give you at least a general guide to the most recent trends in the housing market.

© This article is copyrighted by Kana Nur-tegin. All rights reserved.

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