New contracts for home purchases are coming in very low this month. We counted 10% fewer home sales for the week than the same week a year ago.
In the fourth quarter of 2024, sales were coming in at 5-10% more than the year prior. Those sales gains have evaporated and even reversed. Buyer activity has been dropping for several weeks, and there are now fewer homes in contract than a year ago. Both the weekly new contracts and all the homes in the contract pending stage are below last year.
This housing market is on hold until mortgage rates come down. When will that be? I have no idea. We knew that mortgage rates over 7% were possible for the year, and here we are. I still expect we’ll spend most of the year under 7% for the 30-year fixed rate mortgage, but until that happens, home sales are at a standstill.
There’s signal that the price buyers are paying is declining too.
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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 20, 2025. Please refer to the video below for all the charts I mention in this transcript!
There are now 632,000 single family homes unsold on the market around the US. That’s up one and a quarter percent from last week. It’s almost 25% more homes unsold than a year ago. As I mentioned, inventory of unsold condos is growing faster than that of single family houses. There are 177,000 condos on the market. That’s 30% more than a year ago.
This view is of the last 10 years of inventory trends in the US. Slowly the number of unsold homes is climbing back to the old normal levels. You can see that maybe later this year we get close to the old 2018 levels. Also notice the market spends 4 or 6 weeks at the lows before inventory climbs again for the spring season.
It’s not uncommon for inventory to tick up in mid-January like it did this week. The holidays are over, some of the spring listings come out and there are not a lot of sales yet, so inventory picks up. It’s also common for inventory to dip again before the end of the month. And you can see that in each year’s pattern here.
Inventory growth for the spring usually starts by the second week of February. When the market is hot like during the Pandemic, there were more buyers than sellers in Q1 so inventory kept declining until March or April. But normally we expect that transition week to be in early February.
So - one signal I’m watching with this current market is whether inventory builds starting now in January. If next week inventory is up again, that will be yet another signal of weak demand as a result of the high mortgage rates. Our model expects inventory to tick down next week, as it would in a “normal” year. Stay tuned for that next week we’ll get another signal.
Inventory is building because of demand weakness, not so much because of supply growth. In fact, it seems like the high mortgage rates are holding back new listings too. There were only 46,000 new listings for single family homes this week with another 7,000 immediate sales. The immediate sales are those that are listed and take offers within a few days so they’re no longer in active inventory. All in all there were actually 2% fewer sellers now than the same week a year ago but 3.6% more of those new listings unsold than a year ago. So slightly fewer sellers, but inventory is growing faster than last year.
In this chart we’re showing the unsold new listings each week. At the left end of the chart you can see the 2025 line taking shape. The dark line shows unsold new listings above last year. This market has fewer immediate sales too so inventory is building.
There are two risks for this housing market that we should be able to look out for in the new listings data each week. Are there too many sellers or are there too few? We’ve had a bunch of years with too few sellers. Too few sellers keeps the market restricted and pushes prices higher. That’s been changing though. Most of last year there were 5-10% more sellers than the year prior. We expect that to continue.
But on the other side if we see a flood of sellers, “too many” sellers, that would drive inventory higher quickly and could potentially be the trigger for home prices to fall. I don’t anticipate this scenario. And as I mentioned we can see here that inventory growth is from demand weakness rather than a supply surge. But it’s always worth watching for.
I should point out that the Los Angeles fires don’t really move the needle on the national housing numbers. For example there are typically fewer than 10 new listings each week in Pacific Palisades even in the peak of summer. While a lot of homes were destroyed, the owners of those homes typically do not sell them ever. So the impact of the Los Angeles fires is going to be stretched out over months and years, but it’ll be hard to see in the weekly numbers like the new listings counts here. It was much easier to see the hurricane impact because Tampa and Western Florida have a much more robust housing market typically than California.
So that’s the supply story. Let’s look at home sales, which is really the story of the moment. There were only 45,000 contracts started for single family home purchases this week. That’s 10% fewer sales than the same week a year ago. This is a very slow start to the new year.
Overall the number of homes in the contract pending stage are just over 257,000, that’s actually now almost 2% fewer than a year ago. I’ve been talking about this trend for several weeks now. The weekly readings have been coming in low for over a month or so now the whole set that are in contract are fewer.
In this chart we’re seeing the home sales rate as measured by the new contracts started each week. These contracts are before the sale closes. It takes right now about 45 days on average in contract before the sale closes. But the trend is weak. At the left end of the chart the dark line for 2025 is coming in each week below the last two years. This week is 10% fewer than a year ago. In 2024 we counted 49,000 new pendings, this year is 45,000.
I’ve commented on this trend for several weeks now. Mortgage rates jumped into the 7s in December and we could see it. Tracking the weekly data can sometimes be tricky because of the placement of holidays or weather or other events, but after a month or so like this the trend is clear. It’s very obvious that home purchases are on ice until mortgage rates thaw a bit.
That’s transaction volume. The sales growth we measured in Q4 is gone And you know what? Home price gains from 2024 are looking like they’ve mostly evaporated too.
The median price of those homes that went into contract this week, the median price of newly pending home sales, is $375,000. That’s essentially unchanged from a year ago. Up just half a percent. Normally this time of year you’d expect sales prices to be moving up each week. You get fresh new inventory, the first spring buyers are looking. And that pushes sales prices higher in the first quarter - usually. But this year the pricing pressure is much weaker. Demand is weak and there is no upward pressure on sales prices. In normal years, home prices rise 5% or so over the prior year. This year is starting out much weaker for home prices than normal years. Essentially flat.
At the left end of the chart you can see the 2025 line taking shape. Home prices can bounce up or down in any given week. So the percentage move can change. But right now, it’s looking like almost no home price gains. Different from last year when mortgage rates hit the 7s, we can see it in the price trend as well as the sales volume trend.
The median price of all 257,000 homes in contract is $394,000. That number is still 3.6% more than a year ago. Because many of these entered into contract in November and December. What it means is that even though the real time signals are flat for home prices, the headlines for January when the news comes out in a few months for metrics like the Case Shiller Index will still show a little positive move on home prices.
Again, the real-time measure is of the contracts pending - the stage before the sale closes. The pendings price is really the best early proxy for near-future sales prices.
But we can also look at the data that is more leading. For example we can look at the cohort of homes that are newly listed in the given week and see where those are being priced. And when we look there, the new listings also don’t show much optimism. The median price of the newly listed cohort this week came in at $409,000. That is an uptick for the week but is just 2.5% more than a year ago.
The takeaway on home prices is that everything is under pressure with mortgage rates over 7%. The price metrics haven’t flipped negative, but they could soon. So we’re definitely keeping watch there.
When we look at the leading indicators for future sales prices, I usually track price reductions. This week, the percent of homes on the market Price Reductions eased by only 50 basis points. There’s a slowdown in new listings and those on the market are doing more price cuts. This does not bode well for future sales prices. Normally at this time of year you’d see much more strength in pricing with new listings and some sales. You can really see a stalled home buyer market right now in the price cuts metric.
There are 33.5% of the homes on the market that have taken a price cut from the original list price. Last year it was only 31% and that number was declining a bit faster each week with more sales getting done. At the left end of the chart you can see the 2025 line taking shape. Notice the slope is flattening already. Demand weakness means that this price reductions line will flatten and start climbing earlier in the season than in most years. It looks like that trend is under way.
As I mentioned this week saw 10% fewer purchase offers than a year ago. That’s thousands of sellers who didn’t get an offer this week. Many of those choose to cut their asking price to see if they can generate demand. That’s why we see this line flattening.
This time of year the price cuts line normally moves down with fresh inventory. Newly listed homes don’t cut their prices until they sit on the market for a while. But this trend now is capturing all those that are feeling the pinch of higher mortgage rates. We can see that buyers are waiting.
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