Real Estate Recovery? Depends Where You Live

For millions of Americans, the end of cheap money hit home—literally. The Federal Reserve’s rapid-fire interest-rate increases paralyzed the housing market as buyers decided to wait for lower prices and relief from mortgage rates that had doubled. Would-be sellers kept inventory scarce by clinging to low-interest loans and memories of home values that hit records in the pandemic. Pending sales plunged 39% in November from a year earlier to the second-lowest level on record—behind only April 2020, when the US was locked down.

What will break the logjam? That depends on the Fed’s actions, whether the US economy goes into recession and, crucially, where you live. Many projections suggest that unemployment will begin to rise, further slowing buyer activity and forcing some owners to sell, resulting in lower prices. That all could help satisfy the central bank’s goal of cooling the overheated economy, leading to the end of the rate increases that have been the primary brake on deals.

Pramis Nicolas Montero is among those stuck on the sidelines. With his small business doing well and savings for a down payment in hand, the 36-year-old resident of Port St. Lucie, Florida, would like to buy his first house. But until there’s a change, he has to keep renting. “It’s a double whammy of higher interest rates and overvalued homes,” he says.

Susan Wachter, professor of real estate and finance at the University of Pennsylvania’s Wharton School, expects home prices to fall 5% to 10% nationally in 2023 but find a floor as markets gain confidence that inflation is under control. “Housing is going to ease up,” she says. “I think 2023 will be a turnaround year.”

While higher mortgage rates are a national phenomenon, the housing market is far from monolithic. The slowdown is increasingly marked by regional disparities: The West Coast, for the past decade a leader in the boom, is stumbling, while eastern and southern cities are holding up better.