Home Sales Are Finally Climbing

Everyone knows it’s been a very dry 18 months for home sales. As mortgage rates rose, starting over two years ago now, payment affordability got dramatically worse and home buyer demand dried up. At the same time seller volume dried up. 2023 saw record few sellers each week who listed their homes. 

But now sellers are coming back into the market. New listing volume this week is 18% more than a year ago. Total available inventory is gradually climbing about 1% per week - last year it was still declining in April. As we roll into the second quarter, we should have accelerating inventory growth each week too. 

All of these signals point to rising home sales in 2024. 2023 was very, very low, so “rising” isn’t very difficult. I want to make this point about what the data is showing us now, because there are still a lot of people who assume that mortgage rates need to fall before we see a rebound in home sales. But the data shows that we only need stability in the mortgage markets. That’s what we’re witnessing now.

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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 April 1, 2024. Please refer to the video below for all the charts I mention in this transcript!

Pending Sales

Since we’re talking about sales volumes, let’s start this week with the pending sales data. This week saw 69,000 new contracts for single family home purchases across the country. There were another 15,000 condo sales started. That’s up 3% for the week and it’s a healthy 13% more sales than a year ago. 13% growth over the same week last year.

That brings us to 367,000 single family homes in the contract pending stage. That’s 7% more home sales than a year ago. This chart is showing the new contracts started in a given week. A house gets listed for sale, it accepts offers and goes into contract. The escrow period usually takes 30 or 45 days, so the 367,000 homes will close in April and May. There are 7% more homes in contract and this week saw 13% growth so that implies the sales levels are increasing. It implies some durability to this trend. When mortgage rates rose in January February and into early March, that sales growth slowed. But as we’re now seeing a month or so of mortgage rate stability, we see the sales starting to pick up again. You can see that weekly growth in the chart here. A year ago in April sales were very low, and this year the dark line is showing very nice consistent market expansion over last year. 

So 69,000 new contracts pending. I’m hearing anecdotally that some mortgage colleagues are saying that April is shaping up to be a nice growth month for them. 

I was discussing with HousingWire’s Logan Mohtashami about comparing the Altos pending sales data to other indicators of home sales. Specifically the Mortgage Bankers Association’s *purchase mortgage applications index*. This index that tracks mortgages is still not really showing growth over last year. But our pending sales data is very obviously showing growth. Why the difference? One reason may be that we have had a shift to more cash purchases. When mortgages are more expensive and a lot of Americans have a lot of cash, then more people pay with cash when they buy a home. You can always borrow against the house later if the costs come down. NAR reported 33% all cash buyers which is the most since 2014 when buyers were still cleaning up distressed properties. So home sales may be a bit decoupled from the MBA mortgage data. Just something to keep in mind if you watch both numbers.

New Listings

More sales can happen since we’re finally getting more sellers. New listings dipped a little from last week but there were still 22% more sellers hitting the market this week than the same week last year. That’s 18% growth over last year when we include the immediate sales that were newly listed and are already in contract. The immediate sales don’t add to active inventory, they’re already pending.

That’s 60,000 new listings and another 17,000 immediate sales. Not only are the new listings growing but also there were 8% more immediate sales than a year ago. These are all encouraging signs for sales volume in the housing market.

I’ve changed up the data presentation for the new listings data this week. In this chart we’re looking at the average new listings per week for the 13-14 weeks of the first quarter. Q1 is the lightest period for sellers, it really starts to accelerate in March and then Q2 are the biggest months. If you recall the new listings chart I usually share it has a lot of bumpy noise each week. Squiggles up and down. So this helps us see the bigger trend.

Here’s how to read this data. Each bar is a year, the average total count of sellers from each week in the quarter. Notice how every year as mortgage rates were low and falling, we would have fewer and fewer sellers. That market shrinking trend didn’t reverse until rates started climbing. 

I should point out that most of the time in these videos, I focus on single family homes to give a very precise picture of the housing trends in the US. But in this chart I’ve also included the condos so we can see a total count of homes being listed. I do this because I’m interested in this total new listings volume approaching 100,000 each week. 

100,000 is important because a normal year of home sales might be 5 - 5.5 million transactions in a year. That implies you need to average 100,000 sellers every week to keep inventory stable. Q1 is the lowest set, so all of these weeks will be below 100,000. But if we’re going to do 5 million sales in a year, the number of sellers has to be close to that. You can see why 2023 had so few sales, at least partly because there were so few sellers. 

There were 12% more sellers this year than last year Q1. That’s a good sign. That’s growth. By the way, the quarter averaged 12% more sellers than last year but this week had 18% more sellers so this seller growth is accelerating. 

More sellers means more sales in 2024. This is underway and the trend seems very clear to me. I suppose this trend could reverse if we have another mortgage rate shock with rates jumping back closer to 8%. 

Inventory

That brings us to total inventory. New listings are up 18% year over year, new contracts are up also but only 13% so total inventory of unsold homes is growing. I’ve shown how last year was very obviously a supply-constrained market. This year the dynamic is different. The longer mortgage rates stay higher, the more inventory will build. 

There are now 517,000 single family homes on the market. That’s 26% more homes for sale now than a year ago. This expansion of inventory is now 20 weeks in a row. The takeaway here is that this expansion of inventory is from rates staying high. If rates fall notably, home buyer competition will heat up and this inventory growth trend will finally reverse. 

In this chart, each line is a year.  The two bright red lines are the last two years. You can see 2022 when mortgage rates started climbing dramatically so did available inventory. You can also see the annual seasonal curve. We should have close to 700,000 homes on the market in August or September. That’ll feel like a lot, it won’t be a lot actually, but it’ll be the most homes available since 2019. The longer we stay at higher mortgage rates the more inventory can build back to the old normal levels. 

Now this is a national view, there are definitely differences in different parts of the country. The Gulf markets have more inventory and more inventory growth. Many are back to pre-pandemic levels of inventory. Some of the midwest and northeast are just now coming off the pandemic lows of inventory. Though pretty much every place is growing inventory around the country. Also, I mentioned cash buyers earlier. Anecdotally, the cash buyer markets like Southern California seem to be building inventory more slowly, indicating stronger buyer demand.

Pendings Price

We’ve been talking about how home sales are increasing. This week had 13% more sales than a year ago. But how are prices holding up? The median price of all those homes that got offers this week is $393,775. That’s 5% higher than a year ago. 

This is the price of the new pendings. This is a different price measure than I usually share in our weekly reports. There are many ways to measure “home prices”. Do we want to look at the price of the houses that closed escrow last month? The asking price that home buyers will see if they want to buy? Or in this case the price of those that get offers - indicating where the buyer demand is?

Normally we talk about the asking price of all the homes on the market. If you want to buy a house and you walk into the market today, the median price of single family homes in the US, of all the options you have, is $439,900. That’s up a fraction from last week and only half a percent higher than it was last year at this time. 

But if we look at the price of the homes going into contract, we can see where the buyers are and the price they’re paying, before the sale is closed in the next month or two. The median price of the new contracts pending this week is $393,775. That’s 5% higher than a year ago. I’ve been liking this chart and this data point recently because we can clearly see when mortgage rates hit home buyers and how quickly they react. There are two gray sections here highlighting 2022, when rates spiked and the price people paid for homes dropped. 

The dark line is this year and it looks like home sales prices will reach the all time high of two years ago again in the next few weeks. If we see mortgage rates spike though, home buyers will react quickly and we’ll see these prices drop. 

Price Reductions

If you’ve been paying attention closely to the weekly data from Altos Research, you’ll know that the one area I’ve been sensitive to are the price reductions. The percent of homes on the market which have had to lower their asking price. There are now 31.9% of the homes on the market with a price cut from their original list price. That’s up 50 basis points from a week ago and is 1.4% higher than a year ago, when price cuts were still falling with falling inventory. Because we had so few sellers at this time last year, you can see how this data point is a good indicator of supply and demand balance. So I think we could see at that time buyers grabbing any good property that was available. Buyers now in most markets feel like they have less urgency.  Sellers react to that fact.

In this chart each line is a year. It’s ok for price reductions to climb at the end of March, it’s not catastrophic but we definitely have more homes on the market now with price cuts than in any recent March. This year is the dark line toward the left end of the chart. See how price cuts are in the normal zone. We haven’t had a “normal” year in so long. But the curve is on the rise. This is a leading indicator of future sales prices. And something to pay close attention to. Will finally rising supply help keep a lid on home price appreciation for the year. This is one indicator implying yes.

In a slightly contrary data point, the magnitude of those price reductions is $15,000 now. On average $15,000 price cut from that original list price. That’s like 3%. Last year it was $18,000. Meaning last year the price cuts were still hungover from the really slow fourth quarter of 2022. I’m keeping an eye on the magnitude of price cuts to see if that starts climbing too, that’d be a second note for future home sales prices.  Something to keep our eyes on. 

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. Buyers and sellers don’t necessarily see beyond that though. If they knew the data, would they act differently?

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