Home price reductions have peaked for the year

As available inventory of unsold homes on the market gradually decreases for the winter, our focus shifts to what’s going to happen in 2023. We can expect inventory to keep declining over the holidays and into the new year.  Fewer people want to sell their homes until the spring is upon us, and that’s normal.  With the recently spiking mortgage rates, inventory climbed very late into the year, but supply is definitely declining now. While interest rates have backed off their recent highs, rates are still far above affordability levels for most Americans. So that implies significantly increasing inventory of homes on the market in 2023. That’s how the year is setting up.

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I’m Mike Simonsen, I’m the CEO of Altos Research. Here’s what the data looks like for the second week of November 2022. 

Real Estate Inventory

There are now 568,000 single family homes unsold on the market. Inventory always declines over the holidays because even as some homes don’t sell, many get withdrawn from the market. Some of those will be relisted after the new year. 

This is inventory lower by just half a percent this week, which is a slower decline than normal years. This coming week is the Thanksgiving holiday so inventory will drop by a much bigger percent next.  We’ll take next week off from the video, but the following week we’ll share the latest precise changes.  We have almost 50% more homes on the market now than we did last year at this time, but still 36% fewer than in 2019 before the pandemic. Because homes are selling so slowly right now, each week we inch closer to the recent “normal” levels of inventory. In 2019  there were 892,000 single family homes unsold on the market at this point in November. Back in 2016 there were just under 1 million. 

For a long time it has been hard for me to imagine how home prices could fall substantially while the supply side of the supply-demand equation is so constricted. But of course with rates so dramatically higher than last year at this time, even as supply is still very constricted compared to recent history, demand is much much lower. So supply is low, and demand is much lower. It’s hard to imagine how home prices will hold up next year.

New Listings

When we look at the number of new listings coming to market each week, it just remains super low. There is very little supply being added to the market. Only 47,000 new listings this week, that’s 20-25% fewer people selling their homes each week than in recent years. The dark red line here is this year. We’ll have a big dip for Thanksgiving this week then still fewer each week until the New Years’ holiday week. 

One thing keeping the new listings rate actually elevated a bit more than it otherwise would be is the rate of new construction that’s getting finally finished and put on the market. In places like Texas and Florida a big chunk of the new listings are homes that have been in construction and delayed for much of the year. These are finished now and on the market. So that’s actually buoying the inventory numbers a bit.  There are record numbers of homes under construction right now. So more and more of the active market listings are new construction rather than existing. That has implications for price changes in 2023. Builders may be more likely to drop their asking prices more quickly than sellers who live in their houses. Something to think about.

Pending Sales

Total number of homes pending contract ticked down a tiny fraction this week. And the newly pendings, those going into contract each week are at super super low levels. 314,000 single family homes are in contract, with about 47,000 new contracts started.  That’s 45% fewer home sales happening than last year.  Thanksgiving week will see another drop in pending home sales and then fewer each week until after the New Year. In this chart each bar is the total count of homes in contract - the pendings - each week. The light portion of each bar are those that are newly pending each week. You can see how each week we have fewer and fewer homes in contract, and how we have 45% fewer homes in that sales process than we did last year at this time.  Our sales levels right now look like they normally do over the Christmas New Years holiday, so as we move into December, it’ll be really cold. 

Median Home Price

The median price of single family homes in the US fell by seven tenths of a percent this week and the price of the new listings dropped back by 1.3%. Median home price is $420,000 right now and that’ll finish the year about $400,000. The median price of the new listings is down to $369,900 and you can see in the light red line here how prices have deteriorated nationally since May pretty consistently. The price of the new listings is where we look at the homes that hit the market in a given week. I love this as a leading indicator of where transaction prices in the future will end up.  Notice how the light red line always eases back in the second half of the year, but in the last two years, it was actually pretty flat. Meaning, we had stronger than normal demand in the fall and winter of each of the last two years. In those times if I’m selling my house, I know the demand is there and I price up accordingly. What we can see now is that sellers know demand isn’t there, and they’re discounting if they want to sell. The price of the new listings usually turns positive in the third week of January. It’ll be really interesting to see if that trend holds up in 8 weeks.

Price Reductions

And that brings us to price reductions as a leading indicator. With 43.2% of the homes on the market now having had a price cut, that’s flat now for three weeks in a row. So price reductions have plateaued. They’re not increasing any more. Price reductions are down just a tiny fraction this week as a few homes get sold or pulled before the holidays. Normally by this time of year price reductions are receding quickly as the inventory gets cleaned up at the end of the year.  So you can see the trajectory of the dark red line since September 1 is really telling how dramatically buyer demand stopped at that moment mortgage interest rates spiked over 6% to 7 or 7.5% And that’s really when the demand destruction kicked in. But price reductions have plateaued here at this high level. We’ll start 2023 with high levels of price reductions which means sales that happen in the first quarter of 2023 will be at already lower prices. 

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 book a consult with our team to learn how to interpret this crazy market for the people who need it most right now.  They need you to be the expert for them.

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That’s all the time for this week. We’ll take a week off for the holiday next Monday. Back in two weeks.