All eyes are on the mortgage markets. Rates spiking as fast as we’ve ever seen it. Markets reacting to war and inflation and fears of a coming recession. Lenders reporting 4.5% some getting closer to 5% on the 30 year mortgage. This is at the same time that home prices this week hit a new record high. How quickly and how abruptly will consumers react? That’s what we’re watching for each week.
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 look at the data and see the details for the week of March 28 2022.
Let’s start with home prices today. This week the median home price in the US is $400,000 for the first time ever. That’s up a tick from last week just as you’d expect for this time of year. Just as mortgage rates spike to their highest level in years, the home buying season is still just kicking in and home prices climb each week.
When I say record home price I mean this: This data is not an index, or a model, this is measuring every home for sale in the country right now. If you walk into the market today, this is what you’ll see. And for the first time, you’ll see the median price of $400,000.
Prices cluster at the big thresholds so it might take a few weeks for the median price to keep climbing higher. But we have lots more buying season. In normal years, prices peak at the end of June before retracting towards the end of summer and then dipping over the holidays.
My suspicion is that this year, despite rising rates, will follow that pattern. $430,000 or $440,000 by June. Keep watching each week to see if that holds. Median price was just $328,000 at the beginning of the pandemic. There was a tiny 3 week dip in prices before the market started blazing.
The median price of the newly listed cohort ticked down this week to $399,000. It’s back below the full market for the first time in weeks. This is also normal behavior. The new listings price has been basically unchanged for five weeks now.
That shows us that demand isn’t doing some crazy accelerating like it was last year. The new listings get their biggest push in the first few months of the year, then peak in April or so. They peak and plateau a month or two before the full active market. In the pandemic market of the last couple years, the price of the new listings never backed off because demand stayed incredibly strong well into the 4th quarter each year.
Active inventory has definitely turned the corner too. Available inventory of unsold single family homes rose 2% this week to 253,000. In 2018 and 2019. In 2018 mortgage rates rose to 4.9% and the market slowed noticeably. In the inventory numbers you can see it with about 4% more inventory than the year before. If you were selling your house in 2018, you really noticed the slowdown about August. But it never got that slow: it was scary for a few weeks as a seller and then it was fine.
As of right now that’s our best model for what might happen the rest of this year. If rates spike substantially above 5%, the comparisons become a little more difficult. Rates haven’t been above 5% for over a decade. It’s hard to compare anything about todays housing market with 2011.
If you’re anticipating some big wave of sellers who suddenly rush to get out before the market turns, don’t hold your breath for a huge wave. Because prices have run up so far, we should anticipate some folks trying to capture those gains - especially in second homes and investment properties. We should finally get some more inventory. I think we’ll see that pretty quickly here.
But remember that if mortgage rates squash demand, none of these sellers have to sell. They’ve got great equity and rates and high rents. It’s hard to imagine any downward spiral. Instead, to get back to any level of inventory we consider normal, I’d expect that we need multiple years of higher rates. And maybe that’s what we’re in for. Inventory gradually climbing each year, the reverse of the last decade.
That’s all speculation - let’s look at what we can measure in demand right now.
The percent of homes on the market that have taken a price cut ticked up to 16.9%. Compare that to last year at this time at 16.1% and still accelerating. Two years ago at the onset of the pandemic, price reductions were at 25.5%. And 2019 still recovering from the last rise in rates 28% of the market in March had taken a price cut.
When you’re used to only 1 in 5 homes taking a price cut 1 in 4 feels like a slowdown. Assuming rates continue their trend, that’s what we’re looking at later this year. You can see demand very clearly in price reductions. Normal rule of thumb is that a third of listings take a price cut before they sell. We’re only at 17% right now.
Immediate sales are still super hot of course. A third of the 94,000 new listings last week are already in contract. I suspect we’ll hear anecdotes of sellers not getting their expected bidding wars before we start seeing it in the measurements. As of right now, buyers haven’t backed off one bit. We keep watching for change.
Here’s another way we can watch for a changing market. Relists. Sometimes homes get an offer, go into contract and then the contract fails. This could be because of inspection issues, or financing falls through, or maybe the buyer finds a better home and they walk.
Deals fail. This always happens. I’ve shared relists as a percent of the active market previously, but here is the total volume. And it’s really striking. These are the homes on the market that we can see went into contract and then came back later and got relisted for sale. As the market heated up, fewer and fewer contracts failed. That’s because: I fought so hard to get this home, I’m going to make it stick. And also, I have my financing, I’m paying over the appraisal to make sure the loan works. So you can see we’ve had dramatically fewer deals fail in the last couple years.
In fact, I was talking last week in the Altos Research Top of Mind podcast with Joe Curtis from the Pango Group in Southern California. Pango is a closing services firm and so they see a ton of transactions in California each year. Joe pointed out how Pango’s closing efficiency climbed dramatically during the last two years. And you can see it here. Deal getting done.
But in a turning market, we would expect to see relists start to climb back to normal ranges as more buyers get cold feet or can’t make the deal work. So we’ll keep our eyes on relists this year.
Also this measurement corresponds to the reported cancelation rates that new homebuilders report. I talked with Ali Wolf from Zonda a few weeks ago on the Top of Mind podcast about correlations. So if you haven’t had a chance to listen to that podcast, check it out.