Early signs that housing demand is slowing

We indeed have some signals of a housing market turning slower. While we go from super hot to merely hot, it’s fascinating to watch which of the Altos Research metrics are showing the earliest signals.

Every week Altos Research tracks every home for sale in the country. We analyze all the pricing, supply and demand, and all the changes in that data and we make it available to you before you see it in the traditional channels. I’m Mike Simonsen, I’m the CEO of Altos Research. Let’s see the details for the week of April 25, 2022.

Home Prices

Home prices are unchanged this week. The median price of single family homes in the US this weeks remains at $420,000. That’s the first pause in weekly home price increases since January. A single week of flat price appreciation isn’t yet a trend, but it’s going to be really interesting to see when we hit this summer’s price plateau.

In late April 2019 home prices hit $331,995 and there were a few more weeks of price climbs before the plateau started in mid-May. In April of 2020 we were still in that little dip at the start of the pandemic, but the upturn was already underway and price gains in 2020 kept going well into the late summer and even the fall pf that year. I still expect a few percent more price increases this year, just because of the seasonality. And it will be very notable if we’ve already hit our price peak for the year.

By the way, the reason home prices peak in May is because normally the best inventory and the greatest demand happens in the spring, in preparation for the summer. In a normal market, they get listed now, takes 4-6 to go into contract, now schools out and we move. If you list in July, you risk facing that deadline on the other side of the summer, so homes price are at a little discount to make sure they move on time. And that’s why we expect a few more weeks of rising prices. Even as mortgage rates are rising, it’s still the optimal time of year to transact.

So prices are flat this week and if they’re flat or down next week, that’ll be notable. I think they’ll tick up, but we’ll see next week.

Price of New Listings Down

The price of the new listings stepped down this week to $407,600. That’s off last week’s peak and right in line with seasonal expectations for the new listings. This will bounce around this level for the next month or so. If it starts falling more quickly, that’d be a notable early indicator that rising rates have cooled buyer demand.

Inventory is Up

This week inventory is up almost 2% to 275,000 single family homes unsold on the market. Last year at this time inventory was 310k, but hadn’t yet started climbing for the spring.

Each week now we’re closing the gap with last year. We expect by early July we’ll be posting year over year inventory gains. The year over year and week over week language I use can be confusing. Inventory is climbing each week, but still below last year. I shared some data on Twitter this week that some markets, for example California, are rising each week and already a tiny bit higher than last year. Nationally, inventory is still below last year.

In 2019 inventory had risen 8% over the previous year. In April 2019 we were still feeling the effects of 2018’s rising mortgage rates. At that time there were 867,000 single family homes active unsold on the market. Since right now there are only 275,000, that old normal level feels like a long way off.

Days on Market Up

Here’s maybe the headline for the week. Days on Market actually ticked up this week. This was surprising to me. Normally with the spring market, new homes are getting listed, buyers are ready to go, and the median time they sit on the market decreases until June. Then in the second half of the summer things start slowing and DOM climbs. But now, nationally, we had an uptick in the market time this week shifted up this week to 28 days. Normally market time is decreasing, but this week, up!

That seems significant. Especially since we know that there are still a ton of immediate sales happening. If just a few, maybe over-priced properties, start to feel expensive with new mortgage rates, they start to sit. Seems important. We’ll keep our eyes on that each week.

OK so, market time is inching up. But if you’re an agent in with a good quality listing, you know you’re still finding bidding wars and homes moving as fast as they get listed. Both are true. This is one of those times where if you’re doing 90 on the freeway and take your foot off the gas, you’re “slowing”, but you’re still doing almost 90. Both states can be true.

Bidding Wars Continue

Here’s the immediate sales. 28,000 of the new listings took their offers and went into contract essentially immediately this week. That’s still over 30% of the new listings. There’s still plenty of bidding wars. What that tells us is that in the early stages of a market shift the edges of the market slow first. The peak demand parts of the market still have intense demand.

How's the Market?

This is a five year look at the Altos Research - Market Action Index. This is a metric that we use at Altos which gives you an at-a-glance answer to “How’s the market?” It uses relative levels of supply vs demand. Measuring demand is particularly tricky in real estate when we’re supply constrained. You can’t just look at sales rates and say, 100,000 people bought homes so demand is 100,000. Because we bought everything available.

So the Market Action Index takes into account other demand indicators like price reductions for example. What you end up with is a speedometer. On this scale 30 is what we call balanced. In the Altos reports, you’ll see the speedometer chart. If you want to know How’s the market? In any zip code you can look at the report’s Market Action Index.

Right now it’s no surprise we’re in the strong sellers’s market. Inventory is crazy tight and demand is super high. Things have risen high in the past couple years. But in the most recent weekly readings things have started ticking down.

Last year we were still climbing to the peak. What this tells us is like the days on market, these are the first signals of demand starting to ease off. Everything is still super nuts, but we’ve rolled over the top.

What’s not clear yet in the data is how far things adjust down. Is it only a slight easing back to a merely hot market? Is it more abrupt? Or more deep? Those are the data we’ll keep watching for each week.