Home Sales Dip, but Home Prices Are Holding Steady for Now

This week continues the trend of fewer home sales and steady prices. New contracts dipped as affordability is out of reach for so many. Inventory is very low and just inching up now week over week late in the summer. There are no signs in the data of home prices tanking. We stay vigilant watching for either of these trends to shift.

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I’m Mike Simonsen, I’m the founder of Altos Research. Let’s look at the data for the first week of September. Please refer to the video below for all the charts I mention in this transcript!

Inventory

There are now just over 509,000 single family homes active unsold on the market. That’s up just a hair from last week and 7% fewer than last year at this time. Last year inventory was about to start climbing again with that autumn spike in mortgage rates. Inventory grew in 2022 for the seven weeks from mid September through the end of October. I don’t anticipate that happening again this year. Last year’s late summer inventory growth was a reaction to a big change in mortgage rates. This year while mortgage rates are high, they aren’t climbing now. So over the next few weeks inventory levels will fluctuate a bit down a little, up a little in a given week then start declining reliably for the fall. 

In this chart each line is a year. You can see last year the light red line did that unusual jump in mid-September with that 150 basis point spike in mortgage rates. Before that change it looked as though inventory had peaked for the year. The lesson is that consumers are most sensitive to changes in rates. And that this market is very fragile, even though it’s not deteriorating, it could. For example if mortgage rates hit 8%, we’ll definitely see it in the data.

Sales Rate

As inventory reaches peak supply for the year, we can see how this year’s high mortgage rates have slowed purchase demand. There are 348,000 single family homes in contract right now, with only 54,000 new contracts pending in the last week. That’s down from 64,000 in the week prior. It was a holiday week so it’s always slower, but this year was 14% fewer new sales than Labor Day week last year. In September of 2021 when the pandemic frenzy was still underway, there were 80-90,000 new contracts each week for single family homes. And we’re at 54,000 now. 

There’s no getting around it. Supply is limited, demand is limited. There’s just no sign of sales volume increasing. I keep hoping for it, but it isn’t here yet. 

In this chart, each bar is the total number of single family homes in contract for a given week. The light portion of the bar are the new contracts that week. At the far right end of the chart, the bars are getting shorter and the light portion is getting shorter. Maybe in October we’ll have year over year growth in the new contracts because last year in the 4th quarter is was frozen so solid. You can see in the middle of this chart how quickly the bars got shorter each week in Q4 last year. Hopefully this year has a slightly stronger pattern. I say hopefully. I keep hoping. If rates tick down we’ll see an uptick in the offers being made.  

Price Reductions

Price reductions actually dipped this week to 36.1% of homes on the market from 36.2% last week. That surprised me because price reductions don’t usually peak until October. I suspect what we’re seeing here is an increase in withdrawn listings. These are homes that had been on the market, not had offers, had taken a price reduction, still no offers, so now they’re done trying to sell for the year.  Where we had 54,000 new contracts, we could see another 20,000 or so be withdrawn from listing. 

In this chart each line is a year, with the most homes taking price cuts late in the year, when sellers are trying to get a deal done before the holidays. I expect more price cuts before the month ends. But it’s mildly encouraging that price cuts didn’t accelerate this week.

The takeaway here is that in a market that is deteriorating, price reductions will be climbing. And that’s not happening right now. Last year this happened twice, first starting in March after rates started climbing, price cuts started climbing very notably. It happened again in September after the last spike from under 6 to 7.5% on the 30 year mortgage. That 150 basis point change in mortgage rates surprised everyone. Offers stopped and sellers cut their prices. You can see the extra jump in September of the light red curve here. It wasn’t until November when the withdrawals started accelerating last year and price cuts as a proportion of the active listings started to reset for the new year. 

So the takeaway here is that as price reductions are flat right now over 36% of the homes on the market shows us a slow market, but not a deteriorating market. Like every week for the past couple years, we’re all on the lookout for signals that the market might tank. Can consumers handle mortgages over 7%? Price reductions have been accelerating over the last few weeks when mortgage rates inched up to the multi-decade highs. Rates have inched lower since then and we can see that the slow housing market isn’t deteriorating further. It’s not a repeat of last year. Unless mortgage rates spike to like 8%. Then we will see that price cuts pattern again.

I’ve been pointing out lately that it is more the change in mortgage rates rather than the absolute levels that consumers are responding to. We can see that in the pattern of home list price reductions across the country.

Home Prices

The median home price in the US is now $444,990. That’s down about 0.7% from last week. And still up about 1% from last year at this time.  The median price of the newly listed cohort is $390,000 now, that’s down from last week and essentially unchanged vs last year.  In this chart the dark red line is the market’s price, the light red line is the price of the new listings each week. Prices trend down in the second half of the year and these changes look like totally normal seasonal action.

Here’s what we actually know about home prices now around the US. We’re in a supply constrained market, and there have been sufficient buyers to support prices all year long. When mortgage rates moved from 7 to 7.5% this summer we can see the damper on buyers. That capped any year over year price gains. Affordability matters and consumers adjust quickly. So home prices will end 2023 roughly flat from 2022.

Since inventory isn’t falling and is down just a little from last year, that’s an indication that home prices for 2024 will be also roughly flat compared to now. Some firms have been forecasting 5 or more percent home price gains in 2024. I’d have to say there’s nothing in the current data that shows me that much home price strength in the next year. So that forecast would be dependent on mortgage rates falling substantially before Q2 2024. At Altos, we don’t forecast mortgage rates, so your guess is as good as mine. But there is nothing in the home price data now that shows me significant gains in 2024. That’s why we expect another year of flat home price changes. 

And when we look specifically at the price of the homes heading into contract each week we see the median price at $379,900. That’s also 1% above last year. 

This chart shows contract prices last year vs this year. Early in the year prices were coming in below 2022, now they’re just a fraction above. October of last year home sales prices took a notable dive with that spike in mortgage rates. We’ll see a seasonal price decline in the next few months but the annual comparison only gets easier from here. 

In summary this week we can see that transaction volume does not show any signs of strength. But because this is such a supply constrained market the limited number of buyers have kept a floor on prices all year. That pattern is still intact. 

This is of course national data, and local markets are behaving very differently from each other right now. If you need to get your local data to your buyers and sellers right now, you should join us at Altos Research. Go to AltosResearch.com and book time with our team to learn how to interpret the market signals for the people who need it most right now. They need you to be the expert for them.

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