We’ve been reporting for a few weeks about how the real estate market is reacting to mortgage rates around 7%. It seems pretty clear that sales volume has dipped as rates have moved up. Home buyers are holding off on making offers.
There are measurably fewer sales happening than when rates were closer to 6% earlier this spring. The sales rate bounced up after the Memorial Day holiday as it does, but the bounce was not super strong. As a result we’re no longer gaining ground on the sales pace from last year like we had been for the first five months of the year.
What’ll be interesting to watch is how this slowdown compares with last year's. In July last year, the housing market really hit the brakes with home sales volumes and prices moving lower. So even as this market slows with persistently higher mortgage rates, the year over year comparisons get easier. We’ll tease out the details today.
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I’m Mike Simonsen, I’m the founder of Altos Research. Here’s the latest data for the peak of home buying season in June 2023.
There are now 443,000 single family homes on the market. That’s up 1.5% from last week and only 11.7% more than a year ago. By July we’ll have negative year over year inventory change. Fewer homes on the market than last year. I suppose this will hold true as long as mortgage rates don’t spike again over 7%. This trend is very clear, but we know that home buyers are very willing to pause when the conditions are not in their favor. In July of last year and again in September, home buyers stopped and inventory spiked. The trend we’re on with declining inventory due to very few sellers and more buyers has slowed but is still intact. See the dark red line here and how the trajectory will cross the light red line by next month. (Note: watch the video at the top of this post to see all the charts I refer to, or click here to watch on YouTube).
Inventory has been critical in this real estate market. But I’ve been watching the sales rate very closely in the last few weeks to see the impact of 7% mortgage rates. By mid-June most years, more sales are completing than are starting, so the total number of homes in contract reaches its seasonal peak. That’s what happened this week. There are now 389,000 single family homes in the contract pending stage. That’s 3% fewer than last week and 15% fewer than last year at this time.
At the far right end of this chart, you can see the dark bar dip this week. That’s the indication that we have fewer offers getting made. The dark bars here are the total count of homes in contract. These are sales that are not yet complete. They’ll close in June, July and August mostly. The rate of home sales had been catching up with last year. But that momentum has stalled for the last three weeks with mortgage rates around 7% again. And it’s this sales volume where we see buyer demand slow first. Home prices haven’t adjusted yet. But we can see people wait to make their offers to see if rates dip lower again.
It’s interesting now that we see sensitivity in the sales volume rather than home prices. You can imagine that it’d take persistently higher rates, with persistently fewer offers before prices start to adjust. But that could happen as early as July like it did last year, if rates stay high or move higher.
The median price of single family homes in the US actually ticked up this week to $454,900. In this view, home prices are stacked by year, and you can see how the comparison with last year’s light red line has been harder each week all year. June is almost always peak pricing. As home prices move down in the second half of the year, you can see why we’ll end 2023 with roughly flat home prices vs. last year at this time.
When we look at the price of the homes people are buying, we don’t really see evidence of prices falling yet due to the higher rates.
The price of the newly pending home sales ticked up this week by 1% to $384,000. I included this view this week because it’s notable that we may now be entering the period where the comparison to last year gets much easier. Last year in June, mortgage rates hit the peak from the spring climb and buyers reacted. You can see the light red line, the price of the homes people were buying dipped big again in September when mortgage rates spiked to 7.5%. What’s different now is that we see the the 7% rates are felt first in sales volume. But not yet in sales prices.
The median price of the newly sold cohort is a little volatile, so this isn’t a trend yet, but it’s something to keep our eyes on. Most of the other price measures that we track at Altos are staying relatively stable still. So our year over year sales price comparisons start getting much easier now. If mortgage rates drift back lower, you can imagine that the transaction volume will pick up again, inventory will fall, and that we’ll not see downward pressure on sales prices.
As of today, we haven’t yet seen sellers panic or cut prices. There are just 30.7% of the market that has taken a price cut. That’s up 40 basis points from last week... which is what you’d expect for June. Last year the home price slowdown was obvious. Price reductions were kicking in by 140-180 basis points per week - now it’s just 30-40 basis points weekly. At this time last year, this was how we could easily measure the slowdown. We talked at that time about what this meant: that the home sales which complete in July and August 2022 would have lower prices. This year the price trends are much more supported. That’s for this available inventory at these mortgage rates. Surprisingly.
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