A true data geek, Mike founded Altos Research in 2006 to bring data and insight on the U.S. housing market to those who need it most. The company now serves the largest Wall Street investment firms, banks, and tens of thousands of real estate professionals around the country.
The early data is in and the market is starting the year: very hot. We are looking to prepare for bidding wars, big cash offers over asking sales, transactions happening. But there are some opportunities in the crazy market that get created. We'll explore all of these factors today.
At the same time, we've had dramatic moves in mortgage rates and inflation. So these macro factors could have big impact on home buyer demand this year. So will they finally put the brakes on? It's been such a crazy hot market and we're always on the lookout for the things that might turn the corner.
I'm Mike Simonsen and this is the January, 2022 webinar for Altos research each week. Altos tracks every home for sale in the country, all the pricing, all the supply and demand. We analyze all that data and we make it available to you.
Before you see it in the traditional data channels, we've been doing this full webinar monthly to do the deep dive. And by the way, if you haven't already seen our new podcast, I invite you to check that out. It's called Top of Mind. It is available on all the podcast channels, as well as our YouTube channel. It's where we're going beyond the day to day data. We spend a lot of time at Altos in the data, looking at the deep data every week. But in the Top of Mind podcast I'm interviewing the thinkers and leaders in the industry to get their perspective on what's happening in the market, strategies for success. What we're seeing locally as well as technology and other changes, big trends happening. So that's been a lot of fun. First two episodes are out, find the Top of Mind podcast, wherever you listen to your podcast or on the Altos YouTube channel.
Let's look at the big ideas for today. It’s early January and the signs are that market is already looking near as hot as it was last year. We're going to look at a bunch of demand indicators, some of the supply indicators, some of the pricing indicators, and really see where things are shaping up. The two big macro factors that are really significant right now. Both interest rates and mortgage rates are climbing as well.
What does that mean for buyers? What does that mean for inventory and how demand shapes up for the rest of the year? I'm going to take a look at that.
Investor demand has been a big theme, both at the institutional level this year. The big billion dollar fund buying home homes, especially single family homes for rental, but it's also a factor of individual investors, single homeowners that own one to four units or they buy the next home and they keep the first one as an investment property—what does that do for supply and for competition for buying new homes, does that change? And is that a risk to the smoking hot market right now?
I think one of the big reasons that we do this webinar each month is because home buyers and sellers are afraid. Everybody wants to know what's happening. The market is changing quickly. It's super hot, but there are some real risks in front of us. Some of our buyers and sellers see those risks more directly. Some haven't seen them at all yet. Everybody wants to know what's going on.
So what we're trying to do is be right on top of the data, help you communicate with your buyers and sellers, use the data, use your local data to help them understand, help them make decisions, help them take action quickly. Then we're going to finish up the day with our local trends. We have a few local markets to look at.
I'm going to start today with mortgage rates. The biggest factor, one of the most fascinating factors happening, is that this week mortgage rates jump to about 3.5%. That's the 30 year fixed rate. You can see in this chart, it's the bar on the right side. There a little dark line that spiked up this week. We’re at the highest mortgage rate in over two years now.
When we publish our data, the most common question we get is what happens to the market when rates rise:? A lot of folks who pay attention are expecting rates to rises here. This is both the function of the really hot economy and the federal reserve of is stopping the process of buying the bonds that keep mortgage rates low. As that declines mortgage rates increase.
So we've already seen a spike. The question is: does it spike from here? Does it taper back down and when does need become impactful? A couple things to keep in mind: One is that three and a half percent mortgage rates are still ultra low. They're essentially as low as they've ever been outside of the last 24 months. Historically very low. The average rate on a 30 year loan in the last decade has been 3.9%. So we're still below that.
It's unclear when buyers start to really feel that as rates climb. Mortgage rates are much more impactful to my monthly payment than the actual purchase price of my house. Much more sensitive to a small move in the rate than actually these big moves that we've had in home prices.
So the question is when do and buyers and sellers feel that change in this chart. I wanted to start with this chart here today, because you could see the orange line that peaks in 2018. In 2018, we had mortgage rates rising all year long. They peaked at 4.9% in early December before they started their three year decline, two and a half year decline. We can absolutely see in the data impact of rising rates in 2018 and 20. And we see the hangover in 2019.
So keep in mind, rates rose there in 2018, we could see, impact on the market I'll show you where that is. So you can use that to help forecast your own changes, your expectations for this year. A note though, that rate in 2018 rose, you could see it rose above the long term average. So our spike right now is still below the long term average.
Our spike is higher than it has been, but it's not higher than it has been _over the long term_. So the question is, do consumers feel that? I actually have a quick poll that I want to start with today. I'm going to start with affordability pressure. So my question to you is when you are working with home buyers in your experience with home buyers, we've had rising home prices. And now we have a little bit of rising mortgage rates. And my question to you is when do you think your buyers are going to feel affordability pressures?
Some of them feel it now because the home price has gone way up. Some of them may be more sensitive as rates climb. Affordability as a predictor for home price adjustments in the future is something to pay attention to. So if we get out of affordability and then rates spike way up, that could put the breaks on our market.
When do we expect our buyers to feel affordability pressures? A third of us realize that home buyers feel it right now, like home prices have been up. People feel affordability pressure. What's interesting is we've just spiked the three and a half percent. And most of us are thinking that's not really a threshold of affordability. But once rates climb above four, we expect we're going to see it again.
Some of us think it might be above four and a half percent. Like it was, it took 2018 to get a over four and a half of 4.9% before we really felt it in the market. I don't have an answer to this. Rates have been so low for so long. We're just going to watch it each week and see if we can correlate as rates rise. Do some of our demand measures start ticking back, and then we report it right here. So stay tuned right here.
So 4% would be the next threshold to keep our eye on. So, that peak in 2018, we're going to look at that and we're going to see the impact in other charts as we go through.
Real Estate Inventory
Let's look at inventory. Current levels of real estate inventory are at our new record low there's only 292,000 single family homes active, available on the market right now. That's because we've been buying everything. We've been turning so many homes into investment properties over the years. You can see each year, the January starts lower and lower, and that's because each year more of the single family homes that were in resale have been turned into investment properties, whether we're we're individuals who own a second home, we buy our new one and we keep the first one for investment or from some of the funds, the institutional money, both of those things are happening.
In fact, they're both happening and they've been happening a ton because as rates are low, it's a really good deal to own that second house to pay those two mortgages, have income on one. I want you to pay attention to that 2018 rates spike. The rates climbed, and you could see that fewer of the fewer people by the beginning of 2019, fewer people were holding onto that second home to buy the next one, they were selling it. Inventory rose a little bit, and every other year inventory falls. But in that rising rate year: we had difference.
You could feel it in the market. You could feel the slowdown at that time. It took longer to sell. You could see all of the factors, but what's notable is it's not a crash. It's a little bit more opportunity.
For example, for first time home buyers, maybe less competition. We thought we were going to see some of this last fall, a little bit of cooling last fall, but it's turned around and kicked back in super strong again. So as of right now, all the signals are red hot. We are at a new record low right now. The question is does inventory keep falling, like it did last year through the end of April? Normally inventory bounced around for a few weeks here in January, February, and then starts climbing up.
So in normal years, it starts climbing up in February, March, April, but last year it kept going low and we didn't hit our bottom until April 30th. So it’s unclear which pattern we're on. Here's one way to look at what's going to happen with inventory this year. Each line on this chart is a year. So you could see the curve, the normal curve dips a little bit in January and February picks up in April, May, June, July peak in July, and then starts curving back down. The 2020 pandemic year rates, crater, super cheap and, lockdown. And so inventory, we just gobbled up everything last year. We had a more normal curve of the year, but it shifted way lower. This year, the dotted line is what would happen to inventory if it followed the more normal curve, meaning inventory starts climbing in March and April, and then tapers off again at the end of the year.
So we're starting low. We could end the year at 225,000 homes. Now this is absent a big spike in rates. So the there's a dark line here at the top, the 2018 line as rates rose, you could see 2018 started lower than most, and you can see it through the year. Rates were rising, the market was cooling and more inventory was building. So that little fraction, a few tens of thousands of homes were available. You could imagine our dotted line if rates climb this year to move up a little bit like that, maybe we are in our 300 or 350,000 range instead of our 250,000 range. So, there are no signs in the market of a spike in inventory.
There's a lot of new construction that isn't complete yet. That'll come to market. But there's really no sign of any surge in available real estate inventory. So slightly more is the best we're looking for.
Here's one of the reasons. We're almost done being able to talk about the mortgage forbearance process. As of last week mortgage delinquencies are at 3.8% of mortgages are in any stage of delinquency. 3.6 is the record low. So almost record few homes are in any stage of delinquency. In a few months, probably by April, we're going to be at record few homes in any stage of delinquency. That's because the economy's hot, mortgages are cheap. Everybody has a good mortgage, the payments are low.
And so it is really a good time to hold onto your home and a really lousy time to stop paying your mortgage. We have record few homes in any stage of delinquency, there's no surge of distressed properties is even possible to hit the market. So there's no inventory surge likely to come from any of the pandemic related, forbearance, anybody, even normal delinquencies, normal things like bankruptcies happen and divorces happen. Even those folks can sell their home really quickly in a rising market. So there's no reason to stop paying or to go into foreclosure. Very, very few. And so there's no inventory coming from this side.
There is interestingly, one area of inventory opportunity that, for the agents brokers on the call, you might really consider looking into one of the unusual things about a super hot market. Is that the weird properties, the typically hard to sell ones, actually, it's a good time to sell those. I have a friend who, bought, a few years ago, a home, the construction is called rammed earth. They build the walls out of like mud. It's an efficient, interesting way to build a home, but it's weird. The unusual construction can be difficult to sell. It can be difficult to get inspections, and it can be difficult to finance. But in this hot market, they were able to sell it in a few weeks and move on. So as if you were, the agents and broker business business, thinking about how do I maybe find some inventory this year? One of the opportunities is to look around your community and find the really hard to sell properties and let your neighbors know that it's a good time to sell them.
Real Estate Prices
The median price of single family home picked up this week. This spring is the light colored line here. This is the price of the new listings. Each week, new real estate listings come to market, they get priced. The new listings hit and that cohort has a signal for us, has all the signals of the local market, all the sellers and the listing agents. They know exactly how many bidders there are. They know how many people are in the open homes. They know how quickly the one down the street went and how much over asking the house went for. And so when these signals are hot, we know that we can list our home a little bit higher, and it shows up first in this light colored line here, the price on new listings, any given week. Every January 1st is the low point for the year.
And then we start pricing new listings coming on January, February, March, as we ramp up for the normal spring buying season. What we learned this week is that sellers already see a ton of demand. They remembered last January. And so this week's spike in the price of things jumped very big. By watching the steepness of this slope and how quickly it rises, that tells us how as these get listed. Now these are properties that will get offers in February, they'll close in March. So we can already see the sharp price spikes for transactions that will happen in March.
It's always fun to watch the price of the new listings. And you can see each year that spike. In the strongest, like last year, it spiked very quickly and kept going. Then we had a nice top for the year. It looks to me like,we're going to keep spiking here. And that's going to be really, really significant. However, if mortgage rates spike and that cools buyer demand, we'll know there were no multiple offers on that last house. So now the new listings will get priced down a little bit, and this is in aggregate. We'll see demand changes in this number very quickly. What we see right now is that it's smoking hot as rates rise, by the way anybody buying in January and February already has a rate locked at the lower rate.
So now the rate spikes to say three and a half percent, two things may happen here. One is that folks may rush to buy this spring if they're worried about rates climbing. So what we may see is an acceleration of demand this spring pulling demand forward. And then if rates seem like they're still calm, but at the very least, it's rising it’s going to take a month or two before you can see it in the demand because the people who are buying now have their rates already locked at the lower rate. So it's several months before you'll see it in the number. But you'll see it in the price of the new listings.
Real Estate Price Increases
Here's the other place where we can another place where we can see the big demand this year, the percentage of homes on the market with price increases.
What happens with this phenomenon is we have investors fix and flips. You buy a home, you put some money in, you put it back on the market at a new, higher price. Sometimes it's just a pure marketing thing, same house. You just marketing it at a higher price in the hot market. Normally you can see, we have two to 3% of the homes on the market have price increases in some local markets, especially investor heavy markets like Arizona or Jacksonville, Florida. You'll see price increases are higher as a percentage, more flips, more, investor transactions. It always rises after the beginning of the year. They get priced for the new spring market.
So price increases tend to rise in the new year. We could see that in 2021. We spiked big at the beginning of the year, right? When we had our bidding wars, we had all the craziness at the beginning of last year, and then second half of the year, it cooled a bit.
What we notice is it spiked big already this year. So five and a half, 5.6% of the current market has had price increases. And when I said to pay attention to what happened to the rising rates. Well, with price increases, you can see here, at the end of 2018, early 2019, we'd only had 2.8% because rates and spiked, then two years of dropping rates. Then you could see, at the beginning of the pandemic, price increases spiked last year.
And now they're spiking big again. So you could see just that little muted demand investors knew. It was less of an opportunity to fix and flip in January of 2019, because it was a little more expensive. These are the percentage of homes on the market that have had price decreases. And normally the rule of thumb nationally is about a third of homes are overpriced. They take a price cut before they sell. Sometimes that's intentional. Sometimes it is accidental or a seller who is crazy or just wants to try. Doesn't really want to sell it. Whatever the reasons are about a third take a price cut before they sell. You can see in January, we're reset. You get brand new inventory in the market.
So we're going to keep having fewer price cuts through March. Then stuff that's been on the market for a few months starts to get price cuts by June, July. Now we're looking at school starting, and that's when our price cuts peak.
We have an annual cycle here. Normally this time of year, normally 27%. We've had a hot market for years. So this is actually hotter than the rule of thumb, but 27%. Then last year, all of a sudden it's 22% this year, we're back down to 22%. That's because there's a lot of buyers out there and we're on our way down again to this record, only 15% are taking price cuts, because people are getting the outrageous prices.
Here's our 2018 signal with rising rates. What's going to happen to price reductions? If rates rise this year in 2018, you could see started 2019 with the highest level of price reductions. It was only 29% still actually lower normal. But you could feel it. If you'd overpriced and now your home doesn't sell, now you have to take the price cut. And we could feel that last fall too, if you were overpriced, demand was starting to weaken. This is another signal making the start of the year look remarkably strong.
We have been watching our immediate sales tracker as a measure of demand. One of the biggest phenomenon in the last couple years is how many properties are getting listed and taking offers and going into contract essentially immediately sometimes within hours or just a couple days of listing and we call this immediate sales tracker. Each bar here is a week’s new real estate listings coming into market. The light colored part of the bar is how many of those are already sold before that week is up: immediate sales. What we see is that it's about 25% of the market. It's remarkably strong. All year I expected this to taper off. It has not tapered off at all. But one of the places we would be able to watch a change from super hot to cooling—for example, interest rates climb and that cools demand—is in the immediate sales.
So we have fewer people rushing to buy at that opportunity. Buyers realize they have more opportunity. They start looking around a little bit longer. They wait to see if they can get better prices, all of those things. So the immediate sales percentage will fall. As of right now, it's jumping. So it has not fallen yet. And it's something to pay attention to.
Days on Market
Time on market, normally in January, probably a hundred days. We start to get new inventory in January. And so our days on market will start to fall. Last year, we started at 70 days, which was already significantly faster than normal. Now we're down to only 56 days. This is also where, I mentioned the opportunity for the weird houses. Normally the weird ones, the hard to value properties, the ones that are hard to sell, or maybe need a lot of work. They end up sitting on the market long in a ultra hot market. Those are going and they have gone all year.
So as a result, the median days is already super low. But it's our opportunity to maybe move some of that inventory there. The peak of our frenzy last year was 21 days and it looks like we're in on track for exactly that again. It's hard for me to imagine less than that for the whole country. We're starting faster than we started last year. All the signals right now are ultra hot, even though we have some of the indicators like rising rates that indicate maybe it will cool. And so we're going to keep watching all these indicators to see when, and if it does.
So you want to go to that weird property and see if maybe it's time for them to sell, because it can be hard to sell in when the market's not this hot. You want to be able to take your Altos real estate market report to them and say “The median days is 21 days. And it's the right time for you to sell this weird property if you're thinking about unloading it ever.” so those kinds of things, those scripts, those ideas and strategies are the things that we put in the Altos ebook and we have an ebook written for agents and brokers professionals in real estate: how to use the market data, how to understand it, how to communicate in the ways that I'm doing here to really help your clients get out of that fear, because everybody's afraid of what's happening right now.
Altos Real Estate Market Reports
In your Alto reports, we have an at a glance measure to answer the question: “How's the market?” So for your buyers and sellers who say, I hear it's nuts, what do I need to know? The strategy is you can say “Are you a big geek or a little geek? ‘Cause if you're a big geek, I'm going to give you this report. I'm going to give you two every week while we have your house listed or while you're shopping. And we can look at all the signals, we can look at the price reductions and the days on market, we can look at all of the signals, but if you're just a little geek that can be overwhelming.“
If you're just a little geek I want you to look at one number. This is the market action index. This works like a speedometer. The higher this goes the tighter the inventory is, and the stronger demand if inventory starts to build or as things like price reductions start decreasing and or increasing. So we know that there's less demand end in the market. You'll see the speedometer start to tick down right now. It's a strong seller's market for the whole country. Pretty much across all price points and all geographies. Like it was last year, it's ticked up from last month. It had cooled just a little bit this fall, but if you're a buyer or seller and you are expecting the market to cool this spring, this is how you know. And even if you're just a little geek, you can look, take your Altos real estate market report every Monday and say, “I want you to look at this one number.”
We can watch the real estate market action index over time. So the light colored line here is the weekly reading. And then the dark line is the smooth trend line every January. We have our fewest transactions, demand drops, and then it's going to spike right back up again. We had our first spike. Our January ended hotter than it has ever before. We know inventory is record low and so demand keeps the market action index in strong sellers market territory. But it's already jumped back up and it's likely to keep spiking over the next few months again. All of these are opportunities for you to communicate with your clients.
Understanding Real Estate Quartiles
One other comment about how we look at the data at Altos. We look at every market in the country in price range, segments, four price range segments. The high end of the market may be behaving very differently from the low end. We may see for example, that the high end—and we saw this a little bit less fall—the the top 25% of the market is 950, it's about a million dollar price range and 84 days. But that the 300,000 is the hottest demand part of the market and it's 49 days and falling.
So this is our opportunity. These are in general across the country. It's a three bedroom, two bath homes that are on a quarter acre lot, and they're priced about 300 grand. And that's where the peak demand is. The lowest price segment often has some real junk in there. Some real old or real out of maintenance properties. And so it can take longer and you can see a little bit longer days on market right now. Investor oriented markets that have some old construction, some old stock there. We were looking at like Cleveland and Cincinnati the other day with some colleagues aand you could see the oldest stuff is like a hundred thousand dollars. It's 90 years old. It took twice as long to sell as the next range up.
But this is how we communicate. We may see rates rise and we may see the market slow at the high end. But during the summer, your buyers are saying, “well, I know that the market's slowing” and you say “yes, but you're buying at 300 grand. Like your stage of the market is as hot as it has ever been.” That's what we use the quartiles for.
We can also use the quartiles for that investor analysis so I can buy that $300,000 home. And if I can expand and add square footage, add beds or bathrooms, I can move up to the next price segment and I can move from 300 to four 50 with that improvement. It’s difficult to go from the low end because the low end’s a smaller lot. It's difficult to invest in that move up, but that's a good opportunity, a good conversation for people who are investors or thinking about their property with that in mind.
Local Real Estate Market Reports
Let's switch to some local market reports. Let's look at Jacksonville. So I have a few reports here that are investor markets that have had high inbound immigration. There's a lot of both pandemic and natural migration things going on. So I'm starting with Jacksonville today. Jacksonville is a strong seller's market. This is the whole Metro region. The chart that I have pulled up is the price decreases chart.
So we talked about percentage of homes on the market that have taken a price cut and in Jacksonville because we have a lot of investor properties. The normal range for Jacksonville is about 40% of the market takes price cut. Then two years ago of the market started heating up. It's down to 34, last year down to 24. So normally it's 40. Last year it's 24.
Super hot last June. It cooled a little bit this spring. And all of a sudden, boom, inventory is super tight. Everything's going as quickly as it can hit the market. And we're about to hit our record low in price decreases here. Those buyers are ready to gobble up everything. This is where we will see changes if rates impact that demand. So really fascinating in that Jacksonville went from a little bit cooler, a little bit cooler this fall to one of these markets look super strong.
You can see in the price range segments. You can see our demand here is at 28 days at the high end in Jacksonville, takes a little bit longer. This is still pretty fast. But the 28 days in that mid price range is falling for the spring as well.
Let's look at the Phoenix market. Phoenix is a super strong seller's market: inventory is way tighter than it normally is. Price decreases in Phoenix are also normally in that 40% range. We're down to 25 right now. But the price increases normally it's 4% or 5%. Last year, we were at 8%, 9% of homes with price increases.
These are fix and flips. These are marketing opportunities where people are leaning into demand. And all of a sudden this spring we've had a big spike and price increases. Now this is because inventory is low, and demand is high. And so you can see it right there. So there's another place where that activity sure appears to be accelerating. In Phoenix this spring, starting the year ultra ultra hot. We can switch to inventory and look at the dramatic inventory changes over the last few years. You know, we're 15, 18,000 homes and we're down to 4,000 single family homes active right now. So about where we were inventory wise last year. You can see here's the little beginning of the pandemic lockdown bump, things slowed down there, but then we just ran in.
Charlotte is another place the has both a strong inbound migration, a lot of investor activity. So there's a lot of things like fix and flips and as well as multiple years of strong price increases. You can see that normally this 5,000 range and we're down to 1500 in Charlotte. We even have fewer than we started last year with, so that that's feeling even more intense on that side.
We can see price increase are up, price decreases already down to 20% there. days on market has turned the corner and starting to fall for the, for the spring. It's like I said, pretty much across the country. We are seeing an accelerating early January. It's going to be really fascinating to see how long that persists.
Then Boise had a bunch of inbound, California migration last year, a lot of out-of-state buyers, LA buyers, able to pay LA prices in Boise and had big, big price increases during the year.
We could see, in inventory changes in Boise. It dropped down. Then this fall, it started to normalize a little bit. In the fall we had some cooling of that LA, California demand in Boise. Meaning that zoom town, the people who are like, like I'm going to go work remote and live in Boise. It was cooling and we could see that happening in the price reduction. So here's percent of properties with price decreases normally Boise in this 30% to 40% range. And then last year it's just massive demand. Then it cooled again. And we got back in the 40% range.
So if you were overpricing Boise last fall, you then had to take a cut. It's starting to come down and it's going to be fascinating to see how far this comes down. But what this says is that the California to Boise purchase flow seems to have backed off a little bit. And it'll be going to be fascinating to see if it picks up, which is different from the migration to Charlotte and Jacksonville, for example, which does not look like that's a more consistent, less, pandemic related migration. It's going to be really fascinating to watch Boise this year. It's showing hot, but not quite as hot as last year.
I get to this point in the conversation and there is, a lot of people are asking like, “Hey, can we look at my local market?” And the answer is, yes, we can look at your local market. Just go to Altos research.com and schedule time with our team. We will look at your local market. We'll look at the data for your local market. We'll help you frame that conversation with your buyers and sellers.
For this spring. People are afraid. People are worried about inflation. They're worried about interest rates changing. “Have I missed the peak? Is it about to crater?” All of these questions are what are on people's mind: that's what we solve with the data. So go to altosresearch.com, book time with our team, get the data for your local market.
Remember that that everyone in the country is watching the real estate market right now, all your buyers, all your potentials. So this is your opportunity to communicate, to establish your expertise and to have that in their hands every week.