Amazingly, the first half of the year is already in the books. That makes now a great time to review the first two quarters of 2023 and assess where the housing market might be headed in the months ahead.

Looking back at the second quarter, rising mortgage interest rates told much of the tale. The average 30-year mortgage loan rate in early April was 6.32 percent, according to Bankrate data; by late June, it was 6.84 percent. Likewise, the national median price in March, at the end of Q1, was $375,400, per the National Association of Realtors. By May, it had reached $396,100.

What kind of a real estate climate should we anticipate between now and late September? Will Q3 rates and home prices escalate further? What are the best strategies in the months ahead for homebuyers and sellers? We asked industry experts, who gave us their predictions for the third quarter’s housing trends.

Q3 2023 will be challenging

Traditionally, the third quarter — spanning the summer months — continues the forward momentum built in springtime by many eager buyers and sellers. However, this spring’s high rates made it a more subdued Q2 than usual.

“The housing market continues to be challenged by a severe lack of inventory and a declining number of new listings available for sale,” says Selma Hepp, chief economist for CoreLogic. “The number of new listings tends to peak in spring months and contract as we enter the third and fourth quarters. This spring, the number of new listings for sale has been trending about 40 percent below 2019 levels and about 25 to 30 percent below 2022 levels, which is significantly constraining home sales activity.” Due to continued low inventory and high mortgage rates, Hepp predicts, “2023 homebuying activity will remain disappointing in the third quarter.”

“Every year, transactions and prices tend to be above-trend in the summer before activity typically slows down in the winter,” says Nadia Evangelou, senior economist and director of real estate research for the National Association of Realtors. “Consider that the third quarter typically represents 28 percent of the home sales activity of the year.”

Greg McBride, CFA, Bankrate’s chief financial analyst, agrees that July, August and September are worth watching closely. “This tends to be a key time of year for real estate closings as families with kids like to get moved in and settled before the new school year begins,” he says. “The limited inventory of homes available for sale may suppress the amount of activity we see this year, but not the seasonality.”

Q3 mortgage rate projections

Many decisions this summer and beyond will hinge on where mortgage interest rates land. Here, some pros remain optimistic, especially considering the Bureau of Labor Statistics announcement in mid-June that the inflation rate had dropped to 4 percent, the lowest number in over two years, and the fact that the Federal Reserve recently put a pause on rate hikes.

Inflation is still key to the direction of mortgage rates. — Greg McBride, Bankrate Chief Financial Analyst

“Core inflation has been in a holding pattern thus far in 2023, and as a result mortgage rates haven’t come down,” McBride says. “If core inflation starts to move meaningfully lower, this takes the pressure off the Fed to continue raising interest rates, so mortgage rates would likely follow.”

McBride predicts that the average 30-year fixed mortgage rate will be in the 6.4 to 6.7 percent range during the third quarter, with 15-year fixed rates ranging from 5.8 to 6.1 percent, “as improvement in inflation will help bring rates down from the elevated second-quarter levels.”

Evangelou is encouraged by recent data that indicates inflation may ease in the coming months more quickly than earlier expected. “The latest numbers show that Consumer Price Index rent growth has already peaked and started to cool,” she says. “With this decelerating trend in rent prices expected to persist in the upcoming months, following the trend of asking rent prices reported by the private sector, inflation should slow down further — pulling down mortgage rates in the process,” she adds. “I believe the average rate on a 30-year fixed mortgage will drop below 6.5 percent, hovering around 6.3 percent.”

J. Keith Baker, chair of mortgage banking at the North Lake Campus of Dallas College in Irving, Texas, is even more optimistic. “Sometimes, when there is heavy demand in summer, rates go up a quarter of a percentage point or so and then drop back in the fourth quarter when the seasonal demand for housing decreases,” he says.” I believe that rates for the 30-year fixed mortgage will average 6.75 percent at the start of the quarter before slowly declining to 6.0 percent or just a little lower by the end of September.”

Where home prices and inventory are heading in Q3

Persistent lack of inventory will continue to put pressure on home prices in Q3, Hepp says. “That means we may see another month or two of above-average monthly gains, similar to what we have been observing in recent months,” she adds, noting that CoreLogic predicts home price growth will average 4 percent this year.

“In addition, competition in the market has intensified again and buyers are bidding anew for fewer homes available,” Hepp says. “The share of homes selling over asking price has jumped to 36 percent, much higher than the 24 percent average we saw pre-pandemic.”

McBride thinks sellers will continue to have the upper hand in most markets this summer. “Due to rebounding demand and continued low inventory of homes on the market, home prices will hold up in the majority of areas,” he says. “Home price declines will still be the exception rather than the rule, and isolated to markets where demand has dropped off most significantly.”

Evangelou expects prices to decrease, but only slightly: “The median home price will likely be $385,000 in the third quarter, and home sales are expected to be around 4.6 million, which is higher than the recent cyclical lows but below pre-pandemic levels.”

Strategies for homebuyers and sellers

With the outlook for prospective purchasers appearing murky over the next three months, should you buy a house now or wait?

“Affordability remains severely strained,” says McBride. “Home prices are high, up 50 percent from pre-pandemic levels in some areas, and mortgage rates have been flirting with 20-year highs. As if the spike in home prices wasn’t enough, higher mortgage rates have robbed buyers of one-third of their buying power in the past 18 months.”

The takeaway? Proceed with caution, and ensure that you have good job stability and steady earnings before pulling the trigger on a home transaction. “Be very careful to avoid biting off more than you can chew,” cautions McBride. “Home prices and mortgage rates are both very high, and the risk of a low-down payment loan in this market is that even the slightest slump in home prices might leave you with insufficient equity to pay the closing costs and commissions if you needed to sell.”

The third quarter brings better news for sellers. They continue to wield more leverage than buyers in many markets, and the continued tight inventory drives up shopper competition and prices. But sellers should think carefully about if and when to list their homes, especially if they will then need to buy another one. It may not be worth relinquishing a low, locked-in mortgage rate for a new home that will come with a much higher one.