August 2023 Housing Market Overview

The housing market has begun to improve slightly thanks to more housing coming onto the market. However, high interest rates and low inventory continue to suppress home sales, even as homebuilder sentiment is on the rise. One of the more interesting developments, however, is an increased interest in plans to convert empty offices to apartments, which may increase the amount of available housing substantially in many major cities.

An Increase in New Housing, But Not Enough

Homebuilder sentiment has been on the rise over the past few months as more interest has risen in building new homes. This is due in part to address persistent inventory issues that have helped to keep home prices high, but overall home sales low. Despite this increased sentiment, it is likely that the inventory issues will persist for the foreseeable future, until enough new homes are built to address existing demand.

Interest Rates Remain High

Another factor impacting the housing market are high interest rates, which continue to make it difficult for buyers to secure affordable mortgages. Mortgage interest rates have remained mostly stable for the past month, topping out at 6.78% for 30-year fixed rate mortgages with conforming loan balances, up from 6.67% a month prior. This is substantially higher than it was a year ago, when mortgage interest rates sat at around 5.5%, a factor that has helped to constrain mortgage demand.

Homebuilder Sentiment on the Rise

However, homebuilder sentiment is still on the rise, rising one point in July to 56, indicating a slight increase in their faith in the housing market. This is due to low supply driving higher demand for more construction, which has helped to improve their mood. However, even with their efforts, there are not nearly enough homes being built to address the high level of demand for new housing.

Increased Emphasis on Office to Apartment Conversions

One potential solution that some cities are looking at can potentially kill two birds with one stone: office to apartment conversions. Many cities, including New York, are looking at reforming local laws to make it easier to turn empty office buildings into apartments. This will potentially help commercial real estate holders who now have office buildings sitting empty (thanks to more people working from home), while also providing more housing for potential renters. However, this process is complex, and it may be months or years before these conversions make a real difference in the housing market.