Home prices hit a new record even as the market slows

Even though we can see tiny indications of the housing market trying to get back to more normal conditions, home prices still hit a record high this week. Buyers are still in a heavily competitive market and there is far more demand than there is supply to meet it. That seems to be slowing improving, but it’s a long way from a normal real estate market.

Every 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. I’m Mike Simonsen, I’m the CEO of Altos Research. Let’s see the details for the week of May 2, 2022.

Median home prices

Median home prices hit a new record high this week. If you’ve been watching these videos each week, you’ll know that’s not surprising. The median price of single family homes in the US is now $425,000. We have a few more weeks of prices to rise before hitting the summer plateau. $440,000 would be 10% higher than last year’s peak, so somewhere around there. $435K or $440K before mid June before backing off later in the year.

In fact the price of the new listings hit a new record high this week too, also $425,000. This is the median price of all the homes that just got listed this week. When the price of the new listings rises, that’s because sellers are leaning into the demand. If demand were weakening, which sellers and listing agents see with fewer bidding wars or lighter foot traffic at open homes, then they know to price a little lower. But that’s not happening in any measurable way. In a normal year, we’re right now around the peak of the price of the new listings - as April and May are really the peak of the buying season.

Housing Price Reductions

The other side of that demand indicator, when homes are listed for sale, sometimes they’re over priced and they take a price cut before they sell. There are different reasons for over pricing, sometimes it’s intentional, sometimes accidental.

Normally 30% of homes take a price cut before selling. For the last two years, as demand spiked, far fewer sellers needed to cut their price because buyers were willing to pay. Right now, there are 19% of the homes on the market that have taken a price cut. It’s increasing steadily each week. You can see how we’re notably deviating from last year’s trend.

Last year price reductions didn’t start normalizing until June. We’re on pace now to have a much more normal housing market in the second half of the year. Sellers who listed their homes in August of 2018 were kinda surprised that the market had slowed. That’s something to keep in mind for sellers right now. That pattern looks likely to repeat.

So yes we can see price reductions starting to get a little closer to normal, but from the immediate sales tracker you can see that there is still way more demand than available supply. This week 28,000 new listings took offers and went into contract essentially immediately. At 28% that’s slightly fewer as a percentage than earlier in the year. The pace of these immediate sales seems to be shrinking just a tiny bit each week now. So, like our price reductions, this shows us that the market is still crazy hot, but letting off a little steam as it slowly returns to more normal conditions for later in the year.

Real Estate Inventory

And that brings us to inventory. Available inventory of unsold single family homes increased by a solid 6 percent this week to 292,000. It’s the spring time so we had the most new listings this week all year. That’s totally normal. This week last year was the low point of inventory for the year. It was super late last year. But since we’re still fewer homes available than last year at this time 307,000 then vs 292,000 now and 8 or 900,000 in a normal year, each week with rising inventory is a welcome sight. At this point in 2019, we were still feeling the after effects of 2018s rising mortgage rates, you can see we had 871,000 single family homes active unsold on the market.

Given that we had a healthy increase in inventory this week, here’s the latest forecast for inventory for the rest of the year. Sometime in the next 4-5 weeks, we’ll likely have year over year gains in inventory. When projecting what might happen to inventory as the year progresses, we’re leaning on 2018 data. That’s when rates rose. Inventory started low and ended just a little bit higher. So we have the normal seasonal trends with the added impact of higher cost of money this year factoring into the forecast.

What’s interesting is that most buyers aren’t making yes or no decisions based on mortgage rates. Most buyers buy based on life events. I had that second kid, we need another bedroom. Most buyers are making selection choices. Buy house B instead of house A for affordability. And if you’re a first time buyer, you aren’t even making that tradeoff. For first time buyers, it’s time to buy a house and this is how the economics work, right now. So rising rates don’t really lead to a flood of inventory or a cratering of demand. Rates don’t change those life events. But rising rates do make some deals less palatable.

For instance, in the last decade as I moved to my next home, really low rates make it very affordable to just keep my old one too. Now I have an investment property and two mortgages. These investment deals are why we have fewer and fewer homes for sale each year. A lot of people buy the next but don’t sell the first. But when rates are 5.5% for example, many of those doubling up investment deals are harder to pull off. So we get a few more listings. And that’s what we expect to see later this year. Like 2018, available inventory should start to edge up. But it’s important to note that there is no catalyst for hundreds of thousands of new listings. It’s really hard to imagine a scenario that gets us back to normal levels of inventory any time soon.

OK - that’s all the data we have time for this week. While we are starting to see the market slow in a couple of the key early indicator, it’s really still a story of continued buyer demand. We can see changes on the horizon, but if you’re buying right now it’s a crazy competitive market.