Home Price Signals Point to Flat Growth

Inventory continued to climb this week. Not at a super fast pace, but the number of homes on the market across the country keeps expanding. 

As mortgage rates stay elevated and as unsold supply of homes on the market grows, especially in the South, the leading indicators for future home sales prices continue to be softer than the current headlines suggest. Future home sales price gains over the next 6 to 12 months look flat at best at this point.

The good news for the housing market is that the pace of sales is gradually improving with the expanded supply of available homes. 

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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 May 6, 2024. Please refer to the video below for all the charts I mention in this transcript!

Inventory

There are now just under 600,000 single family homes on the market. That’s 33% more than last year at this time. Available supply of unsold homes is growing and will continue to grow probably into August. In a few weeks we expect the market will have more homes vailable than at any time in the last three years. By the end of summer it looks like inventory will finally be back above 2020 levels. It’ll take several more years of elevated mortgage rates before inventory builds back to pre-pandemic levels of 2019 or earlier. 

Inventory is up less than 1% for the week though. Not a big surge. Because supply of unsold homes typically keeps growing until August, you can see how we’ll probably have 700,000 homes on the market before the seasonal decline comes in the fall. Probably end of August. 

You can see in the inventory chart here, how this year’s trajectory is climbing and looks like it’ll cross the 2020 levels by July. Notice how inventory is climbing faster than last year, but two years ago when rates were jumping 100 basis points each month, inventory was climbing much more quickly. There are now 83% more homes on the market than in May of 2022. That comparison with two years ago is compressing. By July it’ll be only 30% more than two years ago. 

The takeaway for the inventory data is that available inventory of unsold homes is climbing, but it’s not climbing super quickly. two years ago inventory was skyrocketing, and that’s not happening now. This is steady inventory growth that comes right along with elevated mortgage rates.

New Listings

On the new listings front, there were 71,000 new listings unsold this week of single family homes across the country. That’s a little downtick from last week and still 21% more than a year ago. More home sellers are coming back to the market each week. There were an additional 22,000 immediate sales this week - those are new listings that are already in contract so they’re not counted in the active inventory. 22,000 of those. That makes a total seller count of 93,000 for the week. Again that’s 20% more sellers than last year at this time. In 2022, though, there were 105,000 single family homes listed for sale in this first week of May. 105,000 then vs. only 93,000 now. At that time in 2022, there were more sellers and more sales. In fact 28,000 of those went into contract immediately compared to 22,000 now. Mortgage rates were on the rise. So there were sellers rushing to get their house listed and there were buyers rushing to buy before rates went up further.

The takeaway from the weekly new listings data is that after two years of higher mortgage rates, sellers are slowly coming back into the market. We’ll continue to have gradually more sellers. But as I always like to point out, there’s no sign of a flood of sellers. We can see that more sellers are adding to inventory and that’s keeping a lid on home prices, but there’s no signs in the data of an significant imbalance with sellers and buyers that might drive home prices down significantly.

Around the country, sellers are growing in every market. But some market a lot more than others. I’ve been sharing how Florida and Texas have driven much of the inventory gains this year. In both of those markets, housing costs, like insurance and taxes, are very expensive and have climbed rapidly.  So owners in expensive states like Florida and Texas are more likely to sell. As the holding costs for real estate climb, we are more likely to sell. That’s what we see across the country now.

Pendings

There are only 393,000 single family homes in contract. That total number of pending home sales actually ticked down from a week ago, though it’s been climbing for the spring as you’d expect. There are just 3% more homes in contract now than last year at this time. A lot of the spring contracts got closed at the end of April so there are slightly fewer in contract this week. New sales will fill that pipeline up again this week. 

There were 78,000 new contracts pending for single family homes. That was up 1.5% for the week and 11% more than last year at this time.  11% more home sales started this week than the same week a year ago. Last year was bouncing around 70,000 new contracts pending for single family homes each week. This year is closer to 80,000. This growth in the new pendings is very encouraging to me. Sales still lag behind the pandemic boom years and even 2022 which I already mentioned, had more sales than we do now. But last year the sales rate was so slow that nothing was working. This growth in sellers is reflective of the fact that there are more homes for sale. Buyers have more options and are slowly buying them. 

The chart here is the total count of homes with contracts pending. Homes spend 30 to 40 days on average in contract before the sale closes. We can see that growth is just starting to expand over last year. 3% more homes in contract than last year but still 15 to 20% less than two years ago. 20% fewer home sales than in 2022. Even so, the pace of sales is coming in consistently above last year with a little bit of growth. And it seems that many of these are cash transactions. So mortgage purchase volume may still be bouncing along the lows and not showing much growth yet, even as the total sales volume is inching up. This pending count by the way usually peaks in June. So fingers crossed for some good sales growth over the next few weeks.

Home Prices

The median price of those homes with contracts pending is $399,999. Prices tend to cluster around the big round numbers, in this case $400,000. Home prices have been hovering just below $400k for five weeks now. At some point in the next few weeks, expect that prices will break through that barrier and lurch upwards a bit more before peaking in June. 

The median list price is clustering just below $450,000 at $449,990. That’s up a tiny fraction from last week but still just below $450k. Let me explain what’s happening here. If you walk into the market today and want to buy a house the median price of everything available is $450,000. The peak price point for demand is lower than the median price of the available homes however. So the homes in contract are at $400k.

In this chart I wanted to highlight how slowly the active market is moving right now. I have illustrated the last three years of home price trends. In 2022, the light red line in this chart, see how the spring home price trends were rising very quickly - even though at the time inventory was building. There were lots of sellers trying to get the deal done before rates rose too far. But if you didn’t have your house listed by May, you missed the window and home prices started declining. Contrast that with this year, where higher mortgage rates all year have kept a lid on demand and so the active market barely has any price movement all spring. See how the dark line is much lower slope than the previous years. You can use this as a leading indicator of future sales prices. If all the gains happen in the first half of the year, this year is setting up for very little price gains. 

Price Reductions

And we’ll close today with the price reductions. 33.5% of the homes on the market have taken a price cut from the original list price. That’s up 80 basis points from a week ago. That’s a pretty notable jump for one week. Price cuts are definitely on the rise. So, while the headlines are reporting that home prices are up 5-7% from last year, they are, but the leading indicators for future home sales prices are slowing. 

There are price cuts in every market, even the hottest markets. As a rule of thumb about a third of homes on the market take a price cut before they sell. Usually that’s fewer in the spring and more price cuts in the fall, and you can see in this chart how the years cluster around 30%. This year we’re already at 33.5% and rising. If we stay on this pace, 40% of the homes will have price cuts by July. That’s pretty bearish for future home sales prices. It shows that for home sellers now, there are fewer than expected home buyers. This price cuts line is climbing very clearly above and more quickly than in most recent years. Of course in 2022, price cuts were rapidly rising. The light red line here is 2022. The gray lines are the seasonal curves from over the last decade. The price cuts for the rest of the year will definitely be correlated with moves in the mortgage rates. And right now rates have been generally moving up, slowing demand. That could change, but it hasn’t yet. 

And that’s why we do this data work each week. This market is trying to grow, but homebuyers are obviously sensitive to the cost of money. If you aren’t watching the data each week, you’re probably behind the curve. You have buyers and sellers who have no idea how this market is changing right now. They need to hear the data from you. If you need to help buyers and sellers see the actual data, you should join us at Altos.

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