For a time of year that’s typically dormant, there’s a whole lot happening in real estate. Lawsuits threaten the standard commissions model, economic signs point to a long-speculated slowdown, and a narrowly avoided government shutdown almost jammed the gears of federally insured mortgage approvals.

With all the uncertainty, we talked with Zillow Senior Economist Orphe Divounguy about how to process the latest trends affecting the end of 2023.

Today’s mortgage rates are very average if you zoom out

Key stat: Since October 1971, the average rate on a 30-year mortgage is 7.74%.

In early November, the 30-year fixed rate mortgage neared 8% before slipping back toward 7.5%. But according to Divounguy, we maybe shouldn’t wish for rates to drop again too quickly.

“The only times we’ve had massive drops in mortgage rates came at the bursting of the dot-com bubble, then in September 2008 with the fall of Lehman Brothers, and then at the start of a global pandemic,” he says. “I don’t think any of us wants to go back to those times. Rates fell so much because asset prices were falling and the Fed had to step in to rescue the economy.”

Historically, 7% mortgages are the norm, not the exception.

“The good news is that incomes, adjusted for inflation, are increasing again and mortgage rates also seem to be leveling off,” Divounguy says. “Housing demand doesn’t just depend on mortgage rates, but also those incomes. Affordability is a measure of housing cost relative to income; if income is rising, then affordability improves. Millennials are aging into homebuying — that’s a tailwind. Lastly, when you take into account the tax benefits of homeownership and home value appreciation, the gap between buying and renting isn’t that large.”

Takeaway: While current rates can feel like a cold blast of air compared to recent years, if wages keep improving, “wealth will increase sufficiently so that people will become indifferent or accustomed to that 7%. Other factors like the current demographic tailwind should also support housing market activity.”

Homes are still selling faster now than in pre-pandemic years

Key stat: In October, the typical house went from for-sale to pending in 16 days.

“That’s twice as fast as a home used to sell before the pandemic,” Divounguy says. “Demand has been resilient. It has come down, you can see that in the mortgage applications, but it still exceeds supply.”

Absent an economic downturn, so long as demand outstrips supply, we can expect supply to increase. Builders — and eventually homeowner/sellers — will fill the void. “Builders are not going to leave cash on the table. They’re going to step up to try to close that gap. I think that’s positive for housing sales going forward because we know the market is still supply-constrained.”

Takeaway: Despite dogged affordability challenges, demand persists. As long as new construction, rezoning efforts, and existing home sellers continue to ease supply constraints, affordability will likely improve and sales could increase. We are already seeing that: new listings are no longer declining and are closing the gap with year-ago levels.

Educating buyers on finances is a competitive advantage

Key stat: 54% of prospective buyers don’t know what pre-approval is.

One in three is unsure whether or not pre-qualification means a commitment to a lender, according to Zillow research. Also, many buyers are confused by details throughout the financing process.

“Our job at Zillow is to work with our agent partners to help people navigate the financial constraints,” Divounguy says. “A lot of people out there can afford to buy today and don’t even know it.”

Research shows that one in four home buyers doesn’t know how much to bring to the table for a down payment. As Divounguy adds: “We have to dispel the 20% down payment myth.”

Takeaway: Amid affordability challenges, it’s crucial to educate prospects about financial preparedness. Pre-qualification doesn’t commit a buyer to a lender, and it doesn’t impact a credit score. It does, however, remove a major hurdle to buying, and simply setting up a pre-qualification chat with a lender can greatly demystify an intimidating process.