Available inventory of unsold homes on the market continues to climb at its fastest clip all year. The total count of unsold single family homes grew by 9,000 this week, which is very unusual for this late in the year. It’s also notable that inventory growth is from weaker-than-normal demand, not from a surge of sellers. The question is whether we’ll see inventory grow in November, which would be unheard of and would be a bearish indicator for home prices in 2024.
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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 October 16th. Please refer to the video below for all the charts I mention in this transcript!
There are now 546,000 single family homes unsold on the market. That’s up 1.7% from last week. And a big jump for October. Inventory growth hasn’t shown any sign yet of slowing for the year. Last year as the market slowed in the fourth quarter, the number of homes for sale grew until the last week of October. You’d expect inventory to fall in November as new listings decline for the holidays and even if a home isn’t sold, many get withdrawn from the market.
In this chart we see the dark red line for this year still climbing and could even overtake last year’s inventory levels in November. Every other year inventory is falling in November. This is really a reflection of very few home buyers right now. Mortgage rates are still hovering around 8%, maybe they’re off a fraction from the absolute peak a week ago, but still home buyers are waiting to see if affordability improves before making offers.
New listings volume is running even lower than last year. 57,000 new listings on the market, plus another 10,000 which went into contract immediately. That’s the fewest immediate sales in a week since January. Fewer than last October as well.
Sales rate is running fewer than last year too. Although last year the sales rate was actually declining more quickly last year. The market at the time was still shedding momentum from the first half of the year. Sales rate has been low all year and is slowing slowly now.
This is a view of the home sales in contract pending stage. Homes that are in contract now are sales that will close in November mostly. There are only 326,000 single family homes in contract now. That’s a fraction fewer than last week, and 7% fewer than last year at this time. There were just 52,000 new contracts this week which is 6% fewer than last year. There were 30% more sales each week in 2021, which is crazy to think about how dramatically different it is now.
In this chart the height of each bar is the total count of homes in contract at a given moment. This is single family homes in specific here. The light portion of each bar are the new contracts each week. So you can read this as the sales which close in 30 days or so in the future. This chart is where you see the decline last year in the sales volume was much steeper than now. Last year is the middle of this chart. And compare that to 2021 when during the pandemic sales volume hadn’t slowed at all until well into the 4th quarter. Now the height of each bar is lower, there are fewer sales overall, but the decline is slower. So I guess that’s a good thing? As long as mortgage rates stay up here around 8% there are just no signs of the sales volume improving again.
And meanwhile the homes that are on the market are getting fewer offers each week. Those that haven’t sold need to reduce their prices. Currently over 38% of the homes on the market have taken price cuts from their original list price. The normal level of price cuts in a market is more like 35% this time of year, so this is a measure that shows demand is slower than normal and there is downward pressure on sales prices in the next couple months. I’ve been sharing how, in a lot of ways, the market is similar to the 4th quarter last year. But it is notable that last year price reductions were up over 42%. And home sales prices dipped in the few months following before recovering by mid year 2023. What does that say about home prices now?
Home prices across all the measures of active market and new listings and pending sales are up 1-3% over last year. And because home prices were falling at this point last year, we expect that home price appreciation to hold through the end of the year. The median price of single family homes in the US is $439,000 now compared with $430,000 last year at this time when prices were falling each week pretty consistently.
The price of the new listings this week was $398,900 which is up a touch from last week and up a couple percent over last year.
Last year at this time we expected 2023 to finish with slightly negative home price change but we’ll end with slightly positive home price change. The leading indicators for future home sales prices right now are not as bearish as they were last year at this time. The surprise in the data that led us to be too bearish on our price forecast for 2023 was how quickly home buyers responded in the peak demand months of 2023 to even slightly improved mortgage rates. Rates dipped just a bit, demand picked up, we had more demand than supply and prices reversed upward.
So if you’re formulating your home price appreciation hypothesis for 2024 it’ll hinge on where you think interest rates go in Q1.
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