Financing costs are likely going to have a significant effect on housing activity for the next few years. Underlying demand may help to balance it out, however, as young first-time home buyers are entering the market in large numbers.
This demographic, however, will likely be more sensitive to the shift in mortgage rates and is at a higher risk for job loss during a potential recession. If unemployment rises as is expected, home-buying activity is likely to go down even further.
The supply side isn't looking much better. The refinancing boom in 2021 left many mortgage holders with rates below 5%. With mortgage rates hitting around 7% a few weeks ago, sellers don't have any incentive to put their houses on the market.
The current forecast is that a recession will hit in 2023, which will raise the unemployment rate to a 5.4% peak in Q1 of 2024. The increase in unemployment will incentivize many to sell their homes, which will bolster inventory once again.