Has the Housing Market Already Found the Bottom?

Available inventory of homes for sale continues to fall at the end of January. This is a combination of very few new listings and a bit of a surprising uptick in demand from buyers. Low supply is helping to buoy prices, which were falling in the 4th quarter.

So the question is: have we already seen the bottom for the housing market, or is this a temporary blip before an inevitable recession hits, or interest rates climb again? Everyone has their view of course, but the early data is pointing towards a stronger-than-expected spring market.

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I’m Mike Simonsen, I’m the founder of Altos Research. Here’s what we know as we wrap up the first month of 2023.

Inventory

Available inventory of single family homes declined again this week to 466,000. That’s a little bit of a surprise though not entirely unheard of for late January. In pre-pandemic years it was normal for inventory in January to bounce up and down each week in January to settle at the absolute low point for the year during the first week of February before turning higher for the spring buying season. So, that’d be next week’s numbers. Since I’ve been anticipating this year's return to more normal pre-pandemic patterns we would expect the inventory low to hit next week then climb reliably starting in February.  Except that this year inventory hasn’t been bouncing, it’s basically just been falling each week.  We had one little increase a couple weeks ago.  We now have fewer homes on the market than at any time since the end of June last year! In that sense, the inventory curve for the spring of 2023 is starting to look more like the markets of the last two years: very few sellers, and plenty of buyers to gobble up what little is available. 

Inventory is 71% higher than it was at the peak of the frenzy last year. More homes, less buyer competition. And last year inventory kept falling until March 5. But Inventory is still 37% lower than it was in January 2020 just before the pandemic. So in summary: inventory is low, it’s not climbing yet for the spring. At least one more week of decline. But if this year starts to act like the pandemic years, then inventory could keep falling through all of February. That would be a surprise, but that’s where we are. 

Pending Sales

We can see demand improving as Pendings are up 6% week over week. Pendings are those homes in contract but not yet with a closed sale. There are 30% fewer contracts pending than last year, but that gap is closing as demand picks up from the ice cold 4th quarter. A few weeks ago we had 35% fewer pendings than a year prior - now only 30% fewer.  This is evidence that people are buying homes this spring. They’re not just kicking the tires. New pendings are up 16% week over week. It’s January, contracts start to climb. We have only 21% fewer homes going into contract this week. That’s 35% fewer pendings a few weeks ago, 30% fewer now but only 21% fewer new contracts. So that the sales gap between this year and last year is narrowing. Last year the sales rate was so elevated because everyone was rushing to take advantage of the last of the 3% mortgage rates.

Home Prices

In response to surprising home buyer interest and tight supply of available inventory, home prices climbed by 1.2% this week to just under $415,000. It’s not a ton of price strength. It’s not skyrocketing. Again, it’s not like last year. But home prices aren’t falling like we were anticipating as recently as December. 

When we talk about home prices holding up, it’s probably best to think about it as “sustaining” rather than home prices rising or falling. The median price of the newly listed homes this week is unchanged from last week at $379,900 and that’s only a couple percent above last year at this time. That’s the light red line on this chart.  The median price of those 264,000 homes in contract is just about exactly the same as it was last year. Like a 0% change.  So while we see price stability, the year over year comparison is compressing so the annual percentage change in home prices is flat to down for 2023.

Price Reductions

We see the demand in the price reductions data too. Because there are buyers out there, and because supply is so limited, the number of homes with price cuts keeps falling. Down to 33.9% of the active market has taken a price cut recently.  In this chart each line is a year. You can see 2023 starting at the left end of the chart on a pretty steep down curve. The trajectory looks more like the pandemic than pre-pandemic.  In recent years 2019 had the most price reductions because 2018 was a year of rising mortgage rates. 2019 is the blue line here. You can see we’re aiming down there now. I don’t think we’ll get under 30% with price cuts, but the conclusion you can draw here is that home buyers don’t suddenly have easy pickings. The best properties have multiple offers. Anecdotally, those offers I hear are coming in around asking price. These are not bidding wars over asking.  Again, it’s price stability rather than rising or falling from here. 

This is of course national data and the 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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