2023 Q4 Housing Market Trends: What To Expect

Key takeaways

  • The housing market traditionally slows down during the final quarter of the year.
  • Experts predict high prices and high mortgage rates will continue to hamper homebuyers through the end of the year.
  • The ongoing housing shortage makes the market even more challenging for prospective buyers.

We have tagged third base and are heading for home — hopefully a home purchase or sale, that is. We’ve completed the first three quarters of the year and are beginning Q4, a time when housing activity traditionally slows down amid holiday plans, colder weather and decreased interest from buyers.

Mortgage interest rates continue to put a home purchase out of reach for many prospective buyers. And that problem has only become worse throughout the year: Consider that the average 30-year mortgage rate at the end of Q1 was about 6.48 percent, per Bankrate data, versus 7.8 percent at the beginning of Q4. And prices are also high: The national median home price in August was $407,100, according to the National Association of Realtors — a 3.9 percent year-over-year increase and not far off from NAR’s record high of $413,800.

Curious where the housing market is headed during the remaining months of 2023? Read on for insights and analyses from the pros.

What to expect in Q4 2023

If history is any guide, we will see a deceleration of the real estate market over October, November and December. “Seasonally, the fourth quarter tends to be on the slow side for the housing market. With such limited inventory of homes available for sale, that will further curtail the number of real estate transactions in the last three months of this year,” says Greg McBride, CFA, Bankrate’s chief financial analyst.

It’s not hard to figure out why. “A lot of this has to do with the holiday season,” says Dennis Shirshikov, head of content at real estate investment site Awning. “People are usually more focused on family and festivities than buying or selling homes.”

Vivek Sah, director of the Burns School of Real Estate and Construction Management at the University of Denver, sees the next three months being much the same as past fourth quarters — if not a little more so due to the current economic climate. “I predict that the markets will be sluggish due to high interest rates and continued uncertainty in the economy,” he says. “Adding fall-winter seasonality to it, housing market demand will be further diminished during this time.”

However, given the economic volatility we’ve seen this year, Shirshikov says fourth-quarter 2023 could surprise us. “Remote work is reshaping housing demands, and we are also [still] dealing with supply chain issues affecting new home construction,” he points out. “People are also closely watching the Federal Reserve’s moves — a series of rate hikes or cuts can significantly impact mortgage rates, which would obviously ripple through the housing market. My gut feeling is we might see a more active fourth quarter than usual, driven by macroeconomic conditions and a backlog of demand.”

And in some cases, decreased overall housing activity can actually benefit diligent house hunters due to decreased competition among buyers. “The fall becomes an opportune time for first-time buyers to enter the market,” says Jessica Lautz, deputy chief economist and vice president of research for the National Association of Realtors (NAR).

Q4 mortgage rate projections

Mortgage interest rates reached 23-year highs in the third quarter, and most experts don’t see that changing in Q4 — or at least not drastically. “The 30-year fixed mortgage rate will be between 7 and 8 percent during the fourth quarter, as elevated government debt issuance has driven up bond yields, including mortgage bonds,” says McBride.

High home prices and high mortgage rates have sidelined many would-be buyers.
— Greg McBride, Bankrate Chief Financial Analyst

“High home prices and high mortgage rates have sidelined many would-be homebuyers, with the increase in mortgage rates alone stripping away 37 percent of buying power since the beginning of 2022,” says McBride. “Neither of those variables seems likely to change anytime soon.”

Shirshikov also expects continued high rates. “I foresee the 30-year benchmark rate averaging around 7.2 percent and 15-year fixed rates settling in at approximately 6.8 percent, largely based on current economic indicators and Federal Reserve announcements,” he says.

Lautz, however, notes that NAR’s most recent economic outlook report anticipates a much lower average rate for the 30-year fixed-rate mortgage in Q4: 6.3 percent. If that prediction holds true, it would be a godsend to many hopeful homebuyers.

Where home prices and inventory are heading in Q4

Unfortunately for buyers, home prices are likely to continue growing through the end of the year as well, though not at a dizzying pace — perhaps around 3 to 4 percent, says Shirshikov. That aligns with the NAR report, which forecasts that, by year’s end, existing home prices will have increased 3.6 percent over 2022.

Case in point: Despite being a month-over-month decline, NAR’s most recent median home sale price of $407,100 was the highest median for August that the organization has ever recorded.

The continued housing shortage makes market conditions even more challenging, as limited inventory means fewer options. “Inventory of homes for sale, meanwhile, remains well below normal levels at about a two-and-a-half-month supply,” says Rick Sharga, founder and CEO of CJ Patrick Company. “Typically, this number should be about a six-month supply.”

The combination of very low inventory and relatively steady demand practically ensures that Q4 will remain a sellers’ market. But, with wage growth now outpacing inflation, Sharga sees potential hope on the horizon. If mortgage rates start to come down toward the end of 2023/beginning of 2024, he says, “over time, that combination will improve affordability for potential buyers.”

Strategies for homebuyers and sellers

Indeed, Sah believes things are starting to edge slightly in buyers’ favor. “Shoppers need to look for discounts in the market,” he advises. “For those who can afford to borrow at prevailing mortgage rates and carry that higher cost for the next year-and-a-half, they will be able to drive a good bargain in the market on homes currently listed. Also, many home builders have a big motivation to sell their products and are offering significant mortgage buydowns that will help alleviate the current interest-rate environment.”

McBride’s advice to buyers? “Be careful about bidding too much and biting off more than you can chew financially in such a high-priced, low-inventory environment. The novelty of the new home wears off, the mortgage payments do not.”

“This isn’t the frenzy of the summer market,” Shirshikov adds. “So take your time to make well-considered decisions.”

If you’re thinking about listing your home for sale in Q4, conditions should remain favorable. “The typical seller today is selling in 20 days, and about one-third receive more than the asking price, commonly receiving three offers,” Lautz says.

But sellers should still take care to be realistic. “Days on the market will continue to be high due to more limited buyer demand and higher credit costs,” Sah says. “Price your home based on current market conditions to reflect this reality, and adjust your price accordingly.”