Home Prices Have Started to Slip in a Few States

Mortgage rates decided to bounce back into the 7s this week, and we can already see an impact in that immediate sales are slowing down. We can also see the new pending sales slow and price reductions tick up.

Maybe the most notable thing in the data recently is that while home prices nationally are still holding a few percent higher than last year, home prices have started to decline in a few states - in particular Florida - with Arizona and Texas turning the corner as well. 

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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 June 3, 2024. Please refer to the video below for all the charts I mention in this transcript!

Inventory

There are now 605,000 single family homes on the market. Inventory continues to build each week as mortgage rates stay over 7%. Inventory rose by 1.7% this week. And there are now 39% more homes on the market than last year at this time. 170,000 more homes are on the market now across the country than a year ago. That’s a pretty big increase. 

A couple of key facts to note about the inventory increase: One: inventory is climbing everywhere, every state has more homes for sale now than a year ago. Most of the country has over 30% more homes on the market now. But, a few states Texas, California, Florida, Georgia, Arizona, are driving the bulk of the inventory increase for the country.  So inventory is up everywhere, just some places more than others. 

The other thing to keep in mind is what we’ve been talking about for a couple years here. It is higher interest rates that lead to greater inventory. Last fall we all assumed that mortgage rates would be declining by now. Had that happened, inventory would be down again. I don’t predict mortgage rates, but this trend of rising inventory will continue as long as rates stay elevated. That means by next summer, if mortgage rates are still in the 7s or higher, we could finally be back at the old normal levels of unsold homes on the market. 

You can see that taking shape in the inventory chart here. By late summer we’ll have more than 700,000 homes on the market. That will feel like a lot compared to a couple years ago, but it’s still 30% fewer than we used to have. See how the dark red line for this year is breaking towards that top group of the pre-pandemic years. 

New Listings

Now on the other hand, inventory can’t build too much if sellers don’t sell. And there are some signals of seller volume drying up.  There were only 63,000 new listings this week. That’s down 12% on the week which included the Memorial Day holiday. Every year has a dip in activity for the holiday. But I think it’s notable that the holiday week dipped lower than any year except last year.  Seller volume in 2024 had been slowly growing and I viewed that as an optimistic trend. But that seller pace seems like it has lost momentum.     

Still 15% more new listings unsold than last year so there’s inventory growth there. There were fewer immediate sales happening now. Only 17% of the new listings went immediately into contract this week. Of the 76,000 new listings, 13,000 are already in contract. That rate has been dropping all month. 17% is significantly fewer than last year at this time or even 2022 when the market was changing so dramatically. Overall there are 10% more total sellers than in 2023 at this time. 

If we look at the trajectory of the new listings data in this chart here, you can see that the growth has leveled off. If the new listings rate starts to recede and look like last year’s pace, that will be one limiter on how much inventory can grow. 

We will have big inventory gains for the next 4 weeks, then a breather for Independence Day, then another bump in July before tapering off in the late summer.  We’re currently modeling inventory to peak in October and that model is very interest rate sensitive. If rates are climbing late in the year, inventory will climb then too. If rates fall before then, inventory will turn down earlier in the summer too. We’re currently expecting to end the year about 625,000 single family homes on the market which would be 19% more than a year ago. That’s a pretty hefty growth and could skew even higher if mortgage rates keep defying gravity.

Pending Sales

On to the pending sales data. There are 406,000 single family homes in contract, just 1% more than a year ago. And there were just 63,000 new contracts pending for the holiday week. A drop of 8% from last week., given the holiday. 63,000 is just 1% more than last year at this time. So any of the growth in home sales feels like it has evaporated. Also the pendings sales count will typically start declining in mid-June, as the market shifts from the spring season to the summer. So we’re probably at the peak of the sales now.

The pending sales have really lost any momentum they had this spring. This chart is of the weekly new contracts pending. This is the count of all the single family homes that go from listed, take offers and start the sales process. You can see how the dark red line for this year has been a little above last year,  slightly more sales, but recently is now just barely above. 

The sales pace will pick up if rates happen to drop notably in the quarter. Though it’s impossible to know if rates will climb or fall in the next few months. So we’ll just keep our eyes on the pending sales data to watch the impact. 

So, supply is up, transaction volume is sliding. I gotta imagine that we’ll see sales prices notch down in the second half of the year. 

Home Prices

The median price of all the single family homes available in the US is now $453,500. If you’re shopping for a house today, that’s what your selection is. That ticked down from last week and is not even 1% above last year or even two years ago. Annualized home price gains have come down from where 2023 ended. 

The headlines tend to focus on sales prices and the earliest proxy for sales happens with the contracts pending. And, to be clear, the weekly price measure for the newly pending properties across the country is still coming in about 5% greater than last year. These are the final asking prices for all the homes that went into contract this week. These are homes that are not yet sold. This price measure stands currently at $399,000, and has been bouncing 3-5% above last year.  Since the leading indicators of home prices have been softening for a while now, we expect to see this proxy for sales prices to recede lower soon.

In fact, when we look at the state level, Florida and Arizona pending sales prices are down from April. These are the first two states to turn lower this year. Texas is probably at that point as well and parts of the state, like Austin, home prices are still plenty below the 2022 peak.  So we’ve been talking about cooling signals for home prices for a bunch of weeks now in these videos and you can start to see it in a couple of states.

At Altos we don’t seasonally adjust the data, it’s notable that these markets have ticked down in the second quarter, when home prices normally rise. 

When looking at national prices, since supply is greater everywhere and since the other leading indicators of sales prices are softer, we expect the national price indicators to ease lower too in the coming months. That means ease from 6% gains at the start of the year to 4% now, to closer to 0% - flat home prices year over year for the country. We don’t yet have data that shows home prices will decline nationally, but the annualized gains probably disappear. 

Price Reductions

Looking at the price reductions data set, I don’t get any more sanguine. It all fits in the same pattern of increasing supply and homebuyer demand that is just exhausted by high mortgage rates.

This week now 35.1% of the homes on the market have felt the need to reduce their asking prices. That’s 30 basis points more than a week ago and a pretty sizable jump over a year ago. As a rule of thumb, it’s “normal” for about a third of homes to take a price cut before they sell. Sometimes it’s intentional, sometimes not, but about a third are over-priced at listing and then take a price cut before they sell. As home sellers are faced with less demand than they expected, more of them have to reduce their prices.

Price reductions now are reaching the upper 30s nationally. This is a bearish indicator for future sales prices. In the price reductions chart focus on the light red line from 2022. As price cuts accelerated all year that year, that led to annualized home sale price declines in the spring of 2023. So you can see there’s a 6 or 8 month lead time when the price reductions start climbing. 

Now, there are some parts of the country, New England in particular, with still pretty tight inventory and still relatively few price cuts. Supply is balanced with the current levels of demand in some regions. So that may keep a lid on this stat when we look at the national levels. That is, the changes this year are playing out at the local and regional levels, not yet nationally.

And that’s why we do this data work each week. Homebuyers are obviously sensitive to the cost of money. And mortgage rates stayed higher for longer than anyone anticipated this year. They haven’t come down yet. What if they do? 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. You should join us at Altos.

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