High interest rates and limited inventory were among the factors that adversely affected the Greater Des Moines area’s 2023 housing market, which saw fewer homes sold than the previous year.

In the Des Moines area, 13,136 homes were sold in 2023, 16% fewer than the 15,605 sold the previous year, data from the Des Moines Area Association of Realtors shows. The median sale price of a home sold in 2023 was $295,000, up 9.2%, or $25,000, from 2022’s median sale price of $270,000. (The Des Moines area includes Polk, Dallas, Warren, Jasper, Marion, Madison and Guthrie counties.)

“The higher interest rates took a lot of people out of the market,” said Erika Hansen, owner of Erika Hansen Real Estate in West Des Moines and the association’s president. “Home prices are also higher and that also prevents a lot of buyers from being able to buy.”

On Thursday, Freddie Mac’s weekly market survey showed that the average 30-year, fixed-rate mortgage was 6.77%, up slightly from the previous week. And while many in the residential real estate sector are hopeful rates will drop to 6% or lower, Freddie Mac’s chief economist Sam Khater was more pessimistic, citing the increase in consumer prices and interest rates.

Mortgage “rates may stay higher for longer, potentially slowing the homebuying season,” Khater said in a prepared statement. “According to our data, mortgage applications to buy a home so far in 2024 are down in more than half of all states compared to a year earlier.”

John Sorensen, president and CEO of the Iowa Bankers Association, said homeowners with mortgage interest rates of 4% or lower have little incentive to move to a different house with higher interest rates.

“Until rates [drop] to below 6%, we’re not going to see a lot of movement or churn in the market,” Sorensen said during Thursday’s Business Record Power Breakfast.

The housing market tends to favor sellers, who are mostly getting the asking price of houses, Hansen said. “We are in need of houses that are under $400,000 and we aren’t just seeing a lot of those on the market. We also just need to see more inventory.”

In December, there were 2,945 homes for sale in the Des Moines area, association data shows. In January, 2,746.

“What we would really love to see is for over 3,000 listings,” Hansen said. “That would bring a little more balance to the market.”

January’s frigid temperatures and heavy snowfall kept potential homebuyers at home. Just 677 homes were sold in January, 21.5% fewer than the 862 sold in December, according to the association. The median sale price of a home sold in January was $270,000. In January 2023, it was $255,000.

Hansen is optimistic that more homes will be sold in the Des Moines area in 2024 than 2023, especially if mortgage interest rates fall to 6%. Inventory, though, remains a concern.

“We need to build inventory and we’re especially in need of homes under $400,000,” she said. “If interest rates come down and we build inventory, 2024 should be a better year than 2023.”