Home Sales Are Growing. Will It Continue?

On Friday last week, the National Association of Realtors released their December pending sales data. The headline was an impressive 8% jump over December of 2022. 

If you’ve been following our Altos updates, you'll know we shared that sales growth data back in December, as it was happening. You’ll also know that home sales have been expanding for two months now, having picked up in December when mortgage rates dipped. 

The question is: Will this trend continue?

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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 January 29, 2024. Please refer to the video below for all the charts I mention in this transcript!

Sales Rate

There are more homes in contract now than last year at this time. And while I think this trend is durable, it is definitely not a guarantee. In fact, the new pendings / new sales actually came in fewer this week than last year at the same time. A few weeks ago I confidently proclaimed that home sales would be up 15% in 2024, and since then the growth pace over last year has fallen four weeks in a row!

In this first chart today, I’m plotting the growth rate of home sales versus the same week a year ago. We track all the homes that go into contract around the country every week. This week there were 56,000 contracts started for single family home purchases. What we’re showing here in this chart is the annual change each week. There’s a dotted line across the middle. That’s 0%. When the data is below that line, home sales are shrinking compared to last year. When the data is above that line, the housing market is growing. Starting at the left end of the chart, December of 2022, there were 40% fewer sales happening than December 2021. 40% fewer. 

As the year progressed, most of 2023 saw 20-30% fewer home sales than 2022. Everyone knows that. Home sales were very very slow last year. Starting in November the trend finally turned positive. Finally back to growth. Just a few weeks ago, we printed 20% more sales in a week than the year prior. This week was 0.8% fewer. So it was a down week. As I said, this sales growth seems durable. But it is not guaranteed. If mortgage rates are in the 7s this year, this growth will not hold. 

There are now 276,000 single family homes in contract. As I mentioned, that's 5% more than last year at this time. So we already know that home sales in the first quarter have grown by 5% over last year. That’s already in the bag. Despite this week’s little dip in the new contracts, I expect this growth trend to continue. Assuming mortgage rates stay in the 6s.

In this chart each bar is a week with the total count of homes with sales contracts pending. The taller the bar the more sales happening. At the far right end of the chart is this last week. The light portion of the bar are the new contracts I mentioned. I’ve drawn the dotted lines so you can see how sales now compare. Two things this illustrates: First we still obviously have very few sales, but sales are finally building just a little more than a year prior. 

There are 276,000 single family homes in contract vs. 264,000 last year at this time. Make no mistake, 276,000 is still almost 30% fewer than were in process in January of 2022, right at the end of the cheap money frenzy. One reason the housing market can grow this year is because we’re coming off such a very low base. Very few home sales in ’23, so ’24 is on track to grow.  

The other reason that home sales volume is increasing in 2024 is because of less volatility in mortgage rates. If mortgage rates stay in the 6s this year, sales are poised to grow. If they climb back into the mid-sevens, this growth trend will stall. We watched that stall last fall in September and October. We can even see it just a little in the last few weeks as mortgage rates climbed from the mid sixes to 6.9%. Any projection I make about growth in home sales this year is predicated on mortgage rates not jumping into the 7s or 8s again. 

That projection however does not require mortgage rates to fall either. We can see home buyer demand when rates are stable in the 6s. I do not forecast mortgage rates, and while I’m not convinced that anyone can, many of those who attempt to do so are projecting rates in the 5s by the end of the year. I suspect if that happens we’ll see even more demand, with a strong pickup in home sales volume coupled with falling inventory levels, and a return to rising home prices. 

Inventory

When I say inventory would fall with falling mortgage rates here’s what I mean.  There are currently 503,000 single family homes unsold on the market. That’s the active inventory across the country. Inventory fell by six tenths of a percent last week. That’s actually very normal for the last week of January. Most years, inventory levels bounce around the year’s low in the winter months before starting to climb with fresh sellers in February and March. In the last couple years demand has been stronger in the spring, mostly a function of the randomness of mortgage rate fluctuations, so available inventory of unsold homes on the market kept declining well into April. 

In this chart you see a decade of inventory trends. The number of currently available homes on the market is 8% greater than last year. I’ve illustrated that with the dotted lines. You might also notice how in previous years inventory the seasonal changes in inventory levels were much more pronounced. It’s only been 10 weeks since inventory peaked last fall.  I don’t have clear visibility to whether this year inventory bottoms in February like it used to or whether our season has permanently shifted later with inventory bottoming in April. Either way, I expect 2024 inventory to keep growing over 2023. Again, assuming rates stay in the 6s. 

Home Prices

Let’s switch to home prices. If you’ve been paying attention to any of the many home price measures in the headlines, you know that home prices are up over last year. And based on all the leading indicators available in the Altos data, that home price appreciation trend will continue this year. The median price of single family homes in the US is now $424,000. That’s up 1% over last week and continues to be a few percent higher than last year. We use the Altos active market pricing data as a leading indicator of where home sales prices will complete in a few months. A house is on the market now, it gets an offer in February, it closes in March or April, and you hear about that in the traditional housing data in May. But we can see right now where those prices are. And those prices are up.

Here’s what’s wild. When we look at the price of the homes in contract, this is a very close proxy to the sales that will close in the next month. The median price of the homes in contract is just under $385,000. That’s 6.8% higher than last year at this time. As mortgage rates jumped so dramatically in 2022 purchase demand slowed way down. And that’s when home prices peaked in the second quarter of 2022.  As a result, by that same period a year later, April May June 2023, home prices showed year over year declines. 

In this chart we’re looking at all the homes with sales contracts pending. Each line is a year. We’ve highlighted the stretch in Q2 last year when home prices didn’t reach past the all time high of a year prior. That’s the gray section. But as mortgage rates had come down in Q1 last year, buyers came back and home prices recovered so that by the end of 2023 home prices were climbing again, just a little, and finished 2023 at the right end of the chart with price appreciation over 2022.

So now we’re back on the left side of the chart where you see the 2024 price line. The median price of single family homes is already 6.8% higher than last year. It’s funny but it’s really scary to sit here thinking about the affordability challenges and multi-decade highs in mortgage rates and project 7% home price increases for the year. That’s where the data is right now. Buyers are buying at these rates and these prices. Can you imagine what’ll happen if mortgage rates fall into the 5s like some people project? Could we see home prices have a 10% gain in 2024? It seems crazy, but it’s not impossible.

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