A Soft Landing for the Real Estate Market, and What’s Next

Somewhere about this time last summer, I did a video where we pointed out that it looked like the US housing market could have a soft landing in 2023. Any time you use the phrase “soft landing” it should come with a trigger warning, because some folks get really angry to hear it. But I think it’s pretty indisputable now that we got a soft landing.

Since January, home buyers have defied all expectations. Sellers have not materialized, and buyers are buying everything that becomes available. Inventory has fallen all year. The peak of inventory for 2023 so far was New Year’s week, which is insane. And while home prices fell in July and September last year, they’ve largely recovered now.

Three of the four Altos price measures are now showing positive vs. last year. The median price of the homes in contract is higher than last year, and the new sales each week are up a few percent over last year. This is what a soft landing looks like.

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I’m Mike Simonsen, I’m the founder of Altos Research. Let’s look at the data for the second week of July 2023.

Median Home Price

The median price of all single family homes on the market in the US is $450,000. That’s essentially unchanged from last year. Just a few hundred bucks lower.  In the dark red line here (see video above for charts), you can see how rapidly home prices were adjusting lower last year starting in July. This year prices are past their annual peak and will decline, but in a few weeks it looks like the market will be up year over year.

The median price of the newly listed cohort - all the homes that hit the market in the last week - is about $410,000. That’s higher than last year at this time. Last year if you listed your home in July, you priced at a discount because there were no buyers. Those buyers are generally here this year so prices are not up year over year. In the light red line on this chart you can see the big rapid price declines of the new listings in the second half of 2022. That seasonal decline will be less steep this year so annual prices will increase more as the year progresses. 

Price of Pending Sales

I’ve been watching the price of the new pendings each week. As a leading indicator of future sales, this one has been really compelling.  Each week, the homes that go newly into contract, where are they priced? This is a view of where buyers are buying. The median price of the new pendings this week is $379,000. That’s down from last week but you can see how the home sales each week now are consistently higher priced than they were last year.  The dark red line is the weekly curve from this year. The light red line is the curve of last year. Look at those big buyer discounts in July and September last year.  

When I talk about a soft landing, this is where you can really see how it could get derailed. Home buyers are sensitive to big jumps in mortgage rates. If I’m getting ready to buy a house, and mortgage rates jump in a week, I either hold off, or I have to buy a cheaper home. We can see the immediate impact of last year’s mortgage rate spikes in the price of each week’s new pendings. And we can see how right now, home prices are holding up each week. Fortunately for the soft landing, inflation numbers were encouraging last week so mortgage rates fell.

Price Reductions

Will the rest of the year continue to show price gains? As of right now the data says yes. We can see that the homes on the market now are not taking price cuts at any unusual rate. That’s because sellers see demand at the current asking prices.  Homes that are on the market now, if they don’t have offers, take a price reduction, get an offer in August, that sale closes in September or October, and it’s reported in October or November. So we can see almost through the end of the year how the soft landing home prices are holding up.

In this chart the dark red line is the curve of price reductions through the year so far. Currently 33.1% of the homes on the market have taken a price cut. This is a rate about the same as 2018 or 2019 for example, and it shows us that demand isn’t crazy like during the pandemic, but is just fine for the currency level of supply of homes for sale.  

As the year goes on, more homes still on the market will take a discount in order to attract buyers before the fall. There’s a normal seasonal curve here. This is what a balanced housing market looks like.

Sales Volume

As the real estate market’s soft landing has become apparent, the housing bears have switched from fearing that home prices are tanking to pointing out that the sales rate transaction volume is way down. And this is accurate. We have fewer sales now than we did a year ago.

Interestingly, as part of the soft landing, the sales rate is now gradually catching up with last year. There are now 378,000 single family homes in contract pending stage. That’s 10% fewer than last year and fractionally fewer than last week. We’re past the seasonal peak for sales volume, so each week we should generally see fewer pendings.

Last year the market was still slowing, so while there are 10% fewer homes in contract, this week there were only 4% fewer newly into contract. Just 4% fewer buyers making offers than last year at this time. 58,000 new contracts on single family houses this year vs. just over 60,000 last year mid July. We’re gradually getting closer to last year’s pace. I imagine by later in the summer we’ll be showing more sales each week than we had last year. Especially if mortgage rates drift lower from here. 

Inventory

The second half of 2023 looks like we’ll have more sales on less inventory than the year prior. It’s not a lot of sales, demand is way lower than during the pandemic frenzy, and we’re so severely limited with supply that any uptick in demand doesn’t really have anywhere to go. But the end of last year was stopped cold, and this year is warmer, on all measures. That’s what I mean when I say soft landing. 

There are 470,000 single family homes on the market now. That’s up 1% from last week. It’s 7.5% fewer homes on the market now than last year at this time. That inventory gap between now and last year is growing wider every day. Even with mortgage rates around 7% our sales rate has remained strong enough to keep the inventory in balance.

We started 2023 with 490,000 single family homes on the market. What’s wild is that may prove to be the highest inventory of the year. We had more homes on the market over New Years than we do now. Most years inventory peaks at the end of July. In the market slowdown years, for example 2018 or 2022, inventory can keep growing later into the summer or even the fall. Sellers keep listing and buyers hold back. This year is not a slowdown year so we could see inventory peak in a couple weeks. It could be that January 1 turns out to be the greatest inventory for 2023.  And that’s what a soft landing looks like.

There are some local markets which have not landed as softly as the whole country. There are some markets where demand hasn’t recovered. Downtown San Francisco seems to have a lot of churn still to experience for example. And as I’ve said before, a soft landing in 2023 doesn’t mean that home prices will never go down. That would be just silly to presume. Soft landing describes how the market has successfully transitioned from crazy hot to much more stable without going through painful over-correction.

This is of course national data, and local markets are behaving very differently from each other right now. If you need to get your local data to your buyers and sellers right now, you should join us at Altos Research. Go to AltosResearch.com and book time with our team to learn how to interpret the market signals for the people who need it most right now. They need you to be the expert for them.

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