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Home prices continue to soar in spite of market volatility

By Mike Simonsen on January 24, 2022

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Mike Simonsen

A true data geek, Mike founded Altos Research in 2006 to bring data and insight on the U.S. housing market to those who need it most. The company now serves the largest Wall Street investment firms, banks, and tens of thousands of real estate professionals around the country.

Financial markets are correcting very dramatically since the start of the year. Mortgage rates are at their highest in 2 years, since before the pandemic. The stock market is off 10% just since the start of January. Crypto markets are cratering too, Bitcoin is off 25-30% in that time.

These market changes impact the wealth and the optimism of homebuyers. But how quickly do they impact the actual home buying decisions? That’s what we’re watching for in the data. 

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. The news right now is that it’s a hot market already for the spring, and the economic risks, like rising rates or inflation, have not yet derailed that eager buyer acting. I’m Mike Simonsen, I’m the CEO of Altos Research and this is what the data is telling us right now.

The short answer is that it’s way too soon to see financial markets corrections impact the real estate data. If you’re buying this spring, you probably started selling other financial assets last fall to raise the cash to be ready to buy. That means you actually sold at the top of the market.

So if financial market volatility is worrying you about the housing market one thing to keep in mind is that home buying is much more driven by life events than it is by financial events. We get married, we buy a house. We have kids we upsize a house. We get divorced, sell a house. We make a lot of money in crypto, we think about buying a bigger house, then we get married.

First time homebuyers especially, who haven’t accumulated a big financial portfolio yet, are significantly less impacted by financial markets volatility. One scenario this year is that rising rates and stock market fluctuations cool demand for second home buyers which leaves more room for first time buyers - these folks have been battling so hard in the competitive market over the past couple years.

Maybe the big stock market swings create better opportunity for first time buyers. These life events are captured in the big demographic demand of the millennials ready to buy homes. That doesn’t change when bitcoin tanks by 30%.That being said, let’s check on the data as of right now.

Single Family Homes Inventory

Available inventory of unsold single family homes continues to drop like a rock. We’re down to only 277,000 single family homes active on the market right now. That’s down 2.4% from last week and a new record low. There are no signs of inventory bottoming in the next few weeks. It’s looking more and more like it’ll be April again before available inventory starts to climb. We’ll see. 

If you’re concerned about how rising rates may impact the housing market, this is the primary chart to keep your eyes on. We know that rates rose in 2018 from 3.9%-4.9% by December of that year. That notable increase slowed demand and let a little inventory build up.

We started 2019 with more inventory than the previous year. Not a ton more, but a little more. We can use 2018 as a guideline for what might happen this year if rising rates are able to cool the frenzy just a touch. That inventory rise would be very welcome. There are no signs of it yet. As I said, it’s too early. In fact rising rates will first increase demand, with the psychology being to get in before costs rise too much. 

You can see this demand unabated in our immediate sales tracker. The percentage of new listings that are going into contract within hours or days of listing is climbing now. It’s the early spring market. Buyers are ready. And they’re pouncing on anything that becomes available. 32% of the new listings this week went into contract immediately. This is where you know the multiple offers and bidding wars are escalating.

Each bar in this chart is a week, the light colored portion are the immediate sales, the dark red is the portion of the new listings that didn’t get sold immediately. You can see the January volume picking up. And the portion of the light red line increasing each week. 

What’s interesting about these immediate sales is that these properties are in both the new listings set AND the new sales set or newly pending, they’re not actually closed sales yet, but the contract is pending.

This is how we look at the same data in the context of the new pendings. Of the 80,000 homes we saw in this set this week 25% of them were brand new on the market. You can see four years of cycle here. You can see the big dip for the first few weeks of the pandemic and then last year how the immediate sales began to be such a dominant force. That’s why we started tracking the immediate sales last year.

Median Price

This brings us to prices. The median price of a single family home this week rose 1.25% to $375,000. The market is moving very quickly. Peak pricing usually hits in June so we have several more months of rising prices to process.

I’ll be fascinated to see which week median home price climbs past $400,000. That was a threshold last year, we never crossed $399k. In 2017 home prices spent the summer right at $300,000. Each big round number is a psychological barrier for buyers.

If you’ve been watching these videos recently you’ll know that the price metric I like to watch in January is the price of the new listings. Each week the set of homes that get listed for sale that week. It always spikes in the first quarter. The steepness of that spike tells us about price appreciation for the whole year.

What we can see now is that the price of the new listings in 2022 is spiking more steeply even than last year. The price of the new listings is up 2.8% this week to $365,000. Usually in January there’s still a big gap between the new listings hitting the market and the stuff that has already been listed. Usually that gap closes by March when the best of the year’s new inventory hits the market.

You can see at the far right end of this chart how the light red line has already closed the gap with the dark red. Because these are sellers who know the bidding wars and immediate sales happening all around them, this price of new listing shows us incredibly strong demand and is a very bullish leading indicator for home prices for all of 2022.

Real Estate Price Increases

The last one to look at today are the percent of homes on the market with price increases. Not surprisingly given the other datapoints we’ve already covered, the number of homes we saw last fall at a lower price that are now on the market at a higher price - price increases.

This group is big and keeps climbing. Currently 6.1% of the market with a price increase. This percentage is higher in many of the sunbelt investor markets. Last year price increases peaked in mid March. We’re slightly less frenzied now and there are these other financial market risks which makes me feel like price increases will be a little tempered and hopefully peak sooner than March.

But right now - the percent of homes with price increases is yet another signal that the home buyer sharks are circling and they’re very hungry.

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