As Housing Inventory Grows, What Will Happen to Home Prices?

Here’s how 2024 is shaping up: there are now more listings, more active inventory, and more sales than a year ago. 

Sales are increasing because supply is increasing. We’re slowly emerging from a supply-constrained market. Sales in 2023 were held back because there were not enough homes to buy. As sellers gently re-enter the market, more home sales can and are happening. 

What’s notable is that demand for homes hasn’t really picked up from a year ago. Last year there were more immediate sales, fewer withdrawals, and fewer price reductions. Mortgage rates haven’t fallen either; if anything, mortgage rates are higher than they were a year ago.

The question is, how will this impact home prices?

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I’m Mike Simonsen, I’m the founder of Altos Research. Let’s look at the data for the week of April 8, 2024. Please refer to the video below for all the charts I mention in this transcript!

Inventory

There are now 513,000 single family homes for sale on the market. That’s almost 1% fewer than a week ago, the decline is due to the Easter holiday last weekend. Inventory will climb again with this coming week’s data.

There remain about 25% more homes on the market now than a year ago. That’s 100,000 single family homes more for sale now than a year ago. Some of the markets like Southwest Florida have big inventory gains, others like Boston are still just barely climbing off pandemic lows. But they’re all gaining over last year. 

After this coming week, it’ll be interesting to watch if the Year over Year changes slow down at all. In 2023 inventory finally started climbing in mid-April. So they’ll be climbing in tandem. I expect our current inventory growth path to continue for a few more months. Last year there were so few sellers each week and we now observe 10-15% more sellers each week. That growth looks poised to continue.

In this chart each line is a year’s active inventory curve. I’ve been sharing this view lately so you can see how this year’s curve has been separating from last year’s inventory levels. Last year is the red line, this year is the dark red. It sure looks like inventory will keep growing. 

One reason we know that inventory will keep growing is that we can measure the pre-listings. These are marketed as “Coming Soon”, they’re not actually listed for sale yet. The coming soon listings jumped by 26% this week and are 34% greater than a year ago. That tells me we’ll be back on our inventory growth pace with just this one week dip.

New Listings

In the new listings data you can most clearly see the impact of last week’s Easter holiday. Only 55,000 new listings this week for single family homes. That’s down 8.5% for the week and actually was 1.5% fewer than a year ago. The Easter holiday was later in April last year, so next week’s data comparison will show a big jump weekly and yearly with two easy baseline comparisons. Because of the mis-matched holiday weeks, this was the first week of annual decline in new listings volume since way back at Thanksgiving. In other words, seller growth continues, it’s not huge, but it is real growth. And except for the mismatched holiday comparisons it would have climbed now too.

We’ve consistently had more sellers easing into the market. I haven’t seen anything in the data that indicates this will change. In this chart, each line is a year with the new listings count each week. The dark line is this year, and it has been running consistently more sellers each week than a year ago. You can see the Easter drop so that’ll pop back up in next week’s report. 

The gray lines are years past. So even as inventory builds in some parts of the country, there’s not a general surge. There’s no sign of an imbalance with too many sellers for the current demand levels. You can see the gray lines might be 80 or 90 thousands new listings for single family homes each week in April. That’d be a normal level. We’ll hopefully get close to 70,000 next week. The Easter holiday we only had 55,000.

New Pendings

The holiday weekend last week pushed a few contracts out later too. So the new pendings dipped this week too to just 65,000. That’s 65,000 single family homes that took offers and started the sales process. There were another 15,000 condos that got offers this week. That’s down 6.5% from last week and just fractionally fewer than the same time last year. 

Last year Easter was later in the month. So, in fact, the sales numbers this holiday week were as good as a non-holiday week last year. Next week the comparison will be easy so we’ll see a big jump in new offers completed compared to this week and compared to last year.  That’s an encouraging sign for continued growth in home sales over 2023.

Just like the listings volume, the sales volume is definitely increasing. I don’t see any sign in the data of that trend changing. Like I’ve said, if we have a big jump in mortgage rates, that would slow down the sales process. 

And in fact, the 10 year yield has been climbing in response to the continued strength in the economy. It seems like every macro economic data point we get makes it less likely that the Fed will cut rates soon. Those data points drive the 10 year higher, which puts pressure on the 30 year mortgage rate. The good news is that the spread between the 10 year and the 30 year mortgage rates has been compressing a bit. So even though the 10 year is up a lot, mortgage rates are only up a little. 

That compressing spread is one reason that mortgage rate forecasters keep anticipating lower rates coming this year. Will it happen? I don’t know. We haven’t seen falling mortgage rates yet. The good news is that this housing market will continue to expand even if rates are just stable. They don’t have to fall.

Meanwhile - homes are spending just under 40 days in contract now. That’s less than last year at this time when it was closer to 50 days. Fewer days in contract implies a more resilient market, more likely to close and less likely to fail. It probably also is related to the increase in cash buyers we’ve seen this year.  If you’re looking for bearish signs in the housing data, the days in contract is one you might pay attention to. Days in contract is lower now than a year ago and is ticking down as you’d expect for the season. Currently no notable bearish signal in that data point.

Home Prices

At $395,000 prices for the latest sales (the homes going into contract) are up 5.7% over last year. 

In this chart each line is a year and we’re looking at all the homes that go into contract in a given week. Prices typically peak in May or June. We don’t seasonally adjust these numbers, we're literally counting everything. 

These sales prices are Home prices are only 2% higher than where they were two years ago. At that time the pandemic boom was ending, rates were climbing very quickly. Buyers were getting the very last of the affordable payments and the prices paid for the homes reflect that. The light red line here is 2022. You can see we’re just about to surpass the all time high prices of May 2022. 

I want to point out that I’m sharing the pending sales data here. The active market is shifting a bit differently. The median price of all the homes on the market, which is the price data I usually share, has actually lost ground since the start of the year. The median price for all the single family homes on the market now around the US is $440,000. That’s unchanged since last year. By that measure, home prices haven’t climbed at all in a year now. Zero percent home price appreciation. Last year the tighter supply was leading to more upward pressure each week on the market. By that measure, we started 2024 with 3% home price gains and right now we have 0% home price gains. When I say that home prices are looking less bullish than the sales volume numbers, this is what I’m talking about. 

The asking prices are soft and are now showing no appreciation over last year. The sales prices are still showing their 5-6% annual gains that you’ll hear in the headlines.

Price Reductions

Let’s close today with the leading indicator percent of the homes on the market with price reductions. Currently 32% of the single family homes on the market have taken a price cut from the original list price. That’s up just a fraction from last week. It’s notably higher than last year at this time. There are more sellers now who have felt the need to cut their asking prices than a year ago. These are homes on the market now, they cut their price in April, maybe get an offer in May and the sale closes in June or July. We can see slight weakness in those asking prices now.

Now, it’s not a lot of price cuts and it’s not rising super rapidly. It’s not deteriorating from here. In this chart you can see the light red line from 2022 which was starting to take off in April of that year. That was the moment that we could see how rapidly demand was plummeting as mortgage rates were rising. It wasn’t until a full year later that the headlines reported year over year home price declines in Q2 2023.

This market is trying to grow, but homebuyers are obviously sensitive to the cost of money. Buyers and sellers don’t necessarily see beyond that though. If they knew the data, would they act differently?

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