Expect Strong Housing Market Growth Until at Least 2023

Sometimes in the face of tragic world events, the work we do here seems trivial. We started doing these videos two years ago as the world first ground to a halt at the onset of the pandemic. At the time we assumed the housing market would crash, so we wanted to share what we knew, as soon as we knew it. We were quickly able to observe that wasn’t happening and adjust our conclusions. The real time data turned out to be incredibly valuable.

Now we’re faced with another global crisis. The Russian war in Europe seems less likely to directly impact our little corner of the economy, but we can already see impact. And although it feels a little trivial, we’re going to keep doing our work here and hopefully bring some value to the world.

Each 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. Traditional real estate data is released monthly, so by the time it gets to you it’s kinda old news. I’m Mike Simonsen, I’m the CEO of Altos Research. Let’s look at the data and see the details for the week of March 7 2022.

Home prices are climbing rapidly now, as you’d expect for this time of year. The median price of a single family home in the US this week is $395,500. That’s up just over 1% from last week and 12% from last year at this time. Home prices are rapidly approaching $400,00 and it’ll be fascinating to see when they cross that psychological barrier. In 2017 prices stayed at $299,000 all summer long. They finally crossed $300k in mid March 2018. There was a long plateau in 2017. It’ll be interesting to see if that pattern follows again this year. Prices peaked at $399k last summer. The median price of the new listings is currently stuck at $399k, up only $100 from last week. It’s clear the demand is there, so we’ll see when prices move above $400k. Next couple of weeks, I presume.

US Rental Housing Data

We also track rents here at Altos Research. Single family homes rent is currently at $2100 median. That’s up 17% from last year. I wanted to share this because there is some conventional wisdom that says that purchase and rental demand should be inverse to each other. That when we have demand for home purchases, demand for rental units will fall. And vise versa. But it turns out that they move in tandem. Both are driven by household formation and demographics. In a recent Top of Mind podcast, Bloomberg columnist Conor Sen coined the term “underhouseholded.” The massive housing demand right now is catching up from many years of the proverbial Millennials living in their parents basements and they’re now finally forming households. And likewise, when housing demand finally cools, it’ll cool the rental market too.

By the way, the Altos Top of Mind podcast has been so much fun for me. I get to interview the best thinkers in the real estate industry and build the context around the data. This week I interview Dan Green the CEO of mortgage lender Homebuyer.com. We explore some really interesting nuances in the mortgage industry and the big changes we’re seeing right now. Check out Top of Mind.

Real Estate Inventory

Inventory has fallen to only 241,000 single family homes unsold on the market. Each week we add maybe 75,000 new listings and we sell 77,000 more. There are no signs anywhere in the data that this trend is slowing let alone reversing. At this point we expect inventory to keep declining probably until the end of April like last year. If that’s the case we’ll maybe go as low as 222,000 houses for sale. At this point we’re still assuming mortgage rates rise mostly for the year and that puts a small damper on demand. So we’re still forecasting a slight increase in inventory by the end of the year.

For more details on our inventory forecast, you should join for our monthly webinar this Thursday March 10 at 10am Pactifc. We have an hour to dive into all the details. 

Immediate Sales

The immediate sales phenomenon shows no signs of slowing either. This sure feels backed up by all the local anecdotes too. 23,000 of the new listings this week went into contract essentially immediately. It sure would be encouraging to see a climb in homes listed and NOT selling immediately. But we’re still in a world of intense buyer competition, incredibly tight supply.

And this is an important characteristic to note about housing: Even in a world where mortgage rates resume their spike, demand will take months to slow down. We already have the big price growth baked into the market for 2022. And there are no signals anywhere in the data for any slowdown. So at this point 2023 is the earliest we should expect any price moderation. That would only be slowing of price growth.

Real Estate Price Reductions

Finally this week price reductions. In 2018 when we had rising rates, price reductions and inventory were already increasing in early March. That’s the normal pattern. This time around that’s not the case. There are only 17% of the homes on the market that have taken a price cut recently. That’s down from last week. The weekly pattern is almost exactly like last year. Fewer price reductions each week because buyers are in bidding wars all around the country. Price reductions need to moderate later in March and April so that inventory can start building later in the spring. Demand has to slow some. In 2018, rates rose, demand cooled just a touch, and more homes had to adjust to account for lower demand. At this point in the year in 2018, the market was starting to cool. This year we’re still heating up. This is another signal that even if rising rates slow this market, we won’t really see the impact until next year at the earliest.

OK - that’s the data for today. As I mentioned, the webinar is Thursday March 10 at 10am Pacific. We get a ton of participants in these webinars each month, so you should join us too. We’re going to talk rates and inflation and investigate how other world events impact US real estate day to day. If you have clients who need to navigate the crazy waters of the US real estate market, you should join us. See you Thursday and more next week.