Available inventory of homes for sale dropped big this week. So far this year demand for homes has exceeded the number of sellers who are willing to sell. It seems that sufficient numbers of homebuyers are able to afford homes at these prices and at these mortgage rates. Buyers know that if they buy now, and rates decline in the future, they can always refinance. If rates go up in the future, then a buyer now knows they’re already at their best position.
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I’m Mike Simonsen, I’m the founder of Altos Research. Here’s the latest data for the first full week of February.
Inventory of homes for sale continues to fall. It might surprise you to learn that falling inventory in February is actually a pretty unusual phenomenon. Until the pandemic, you could count on inventory to be rising now as spring’s home sellers started listing for the biggest demand part of the year and buyers weren’t yet out in force. But the pandemic years buyers came out quickly after the new year and inventory didn’t bottom until much later in the spring.
After last fall our models had assumed that inventory would bottom this year in January, and be climbing by 1-2% weekly by now. Instead inventory fell by 3% this week. This is a big step down. Meaning we had far more buyers than sellers this week. There are now only 443,000 single family homes on the market across the whole country. We have 46% fewer homes on the market now than we did in 2019. We started the year with expectations of returning to those previous normal levels of inventory and yet the data continues to defy the expectations.
It would be a mistake to think of this spring market surprise to be only demand driven. There is demand, but it’s really a supply story. Much of the US is still at pandemic lows in terms of homes on the market. Each week very few new listings are becoming available. This week 58,000 single family homes. That’s 13% fewer than last year at this time. Again, if you were expecting inventory to climb because of a scary economy, or investors panicking, for example, you’re being surprised every week. Americans are holding onto their 3% mortgages. They’re not eager to sell their homes.
When we measure the pendings, we can see a steady climb in home sales is coming. Last year finished with very few transactions. But each week now the pendings count is climbing rapidly. There are now 291,000 single family homes in contract across the US. That’s 23% fewer than last year, but recall that just a few weeks ago we had 30% fewer than the previous year. So the sales gap is closing quickly. And last year at this time was one of the hottest markets ever. In fact, last year at this time we had more homes in contract than we did available on the market to buy!
There were 13,000 new pendings this week which is only 9% fewer than last year at this time. Was 30% fewer, now 23% fewer and new pendings are only 9% fewer. So it looks like the sales gap will continue to narrow. Still fewer sales now but much much better than the catastrophic fall market.
We can see this supply demand equation play out in the price reductions data too. This week price reductions fell to 32.2% of the market. 32% of the homes on the market have taken a price cut recently. If it continues at this pace it could be under 30% in a few weeks. That would illustrate a remarkable market turnaround from last fall. Again, demand is not crazy like last year when only 18% of the market needed a price cut. Now it’s 32%, but it is tightening rapidly.
That all comes together in the price trends. Home prices are slowly ticking up from the holiday lows as you’d expect this time of year. The median single family home price in the US right now is $418,200. That’s up a fraction from last week.
The important thing to note in the pricing data is that none of the leading indicators are particularly strong. In fact the price of the new listings - all the homes newly listed this week is exactly the same as it was a year ago. Flat, 0% increase. The price of the newly listed cohort leads the full active market, which leads the pendings, which finally result in the sales. So as we see supply contracting across the US, we see sufficient demand despite higher mortgage rates, but we can see the impact of the affordability of those rates in that the market is not driving prices higher. At least not yet. This week mortgage rates jumped so we’ll see what happens in the next week how sensitive Americans are to those changes in costs.
This is of course national data and the 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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