Mortgage rates have come down with recent good inflation news, but rates are still higher than they were a year ago and higher than they were 6 months ago. How will consumers respond as they drop? I expect that mortgage rates under 6.75% and moving towards 6.5% will shake homebuyers into action, but we certainly can’t see it in the data yet.
New pendings this week came in significantly below last year at this time. Mortgage rates are down, but it doesn’t appear to have hit a threshold to incentivize home buyers yet. It’s too soon after the recent mortgage rate drop to see any bump in the home purchase numbers of course, but if rates keep falling or stay in the mid sixes for a while, maybe we’ll see some homebuyer demand in the late summer. As of July though, for three weeks in the last five that we’ve seen, there are fewer new pendings than last year. Fewer sales and a shrinking market as consumers wait it out.
Home prices are not as dire as the recent transaction volume, and I have a bonus chart today to illustrate what we already know about where sales prices are going in the future. Stick around for that.
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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 July 22, 2024. Please refer to the video below for all the charts I mention in this transcript!
There was a pretty big inventory jump of 2.6% this week to 668,000 single family homes unsold on the market. That’s a buildup of 16,000 homes, the biggest one week change of the year. We’re rebounding inventory after the holiday, so it’s not that much of a surprise, and it’s less of a jump than what was happening at this time in 2022. There are another 179,000 condos unsold on the market.
We’re in a cycle of very slow home buyer demand, which has not yet responded to newly lower mortgage rates. Mortgage rates are still higher than they were last year at this time and higher than they were at the start of the year. So even though they’ve fallen from the recent peak in early May, consumers probably don’t feel like it’s any kind of bargain. Freddie Mac reported rates at 6.8%. In my opinion, under 6.75% on the way to 6.5% will be a significant enough move in rates to move the needle for buyers. But this week sure didn’t provide any confirmation for the hypothesis.
There are 39% more homes on the market now than a year ago. This is the same gap as we’ve been at for a while. Just around 40% inventory growth over 2023. In the second half of last year, as mortgage rates were climbing, inventory kept climbing. So our expectation for the second half of this year is that inventory growth will compress compared to last year. Still expecting inventory to peak late in the summer or early autumn and end the year with 20% inventory growth over the end of last year. In the inventory chart here, you can see that while inventory is up over last year, we still have a third fewer homes on the market nationally than we did in 2019 before the pandemic.
This week saw 69,000 new single family listings unsold. That’s 8% more than a year ago. There were another 15,000 new listings that are already in contract, which is very low for immediate sales recently.
So that’s a total of 84,000 total new sellers for single family homes this week. That’s only 3% more sellers total this week than last year at this time. And remember that last year was characterized by that extreme shortage of sellers all year but there’s only 3% more sellers now.
Unsold inventory of homes on the market is growing now and that growth is coming from a demand slowdown not from a supply surge. In fact sellers seem to be pulling back. Fewer sellers each week. The market is shaping up to look more like least year in that way. To me that lack of new supply suggests it’ll keep a cap on inventory growth even if buyer demand stays dormant for the rest of the year.
In this chart each line is a year. The most notable part of this new listings data is how low the red line from last year was. The dark line is this year. For most of this year we could see consistently more sellers each week than a year ago. It feels to me like that difference is receding and the rest of 2024 will see sellers sidelined like they have been each of the last two years in the third and fourth quarters. We’ll confirm this take by Mid August if new listings volume surpasses the light red line of 2022.
We’ve had a surprisingly strong economy for the last two years, if that vibe changes for consumers, maybe we break out of the low-listing pattern we’ve been in for so long. Keep a look out for that.
Even as the seller side stays restricted, when we look at the latest sales data, the new pending contracts that started this week, there is really nothing to be optimistic about. Only 62,000 new contracts are pending this week for single family homes. That’s 9% fewer sales started than the same week a year ago. There were another 13,000 condos that went under contract. That sales number barely rebounded after the holiday earlier in the month. Three weeks of the last five the new contracts started have come in fewer than a year ago. That’s worth tracking.
In this view of the new contracts pending each week, this year’s dark line was running ahead of last year. But since May you can see a distinct slow down. Sales are looking now no better than last year’s very slow rate. I’ve highlighted the last two months in gray here. See how this year’s weekly tallies have dropped since May. In 2022 they stayed elevated until July.
So what happens next with this indicator of home sales? We’ll probably see a little rebound to finish the month, I assume this just because later in July is easier than early July. And mortgage rates have been moving in the right direction. And if rates fall far enough for long enough, maybe we'll see the demand pick up in August and September to show some annual growth. The good news is that rates have been moving in the right direction with the recently good inflation news.
The median price of all the homes on the market in the US is $450,000. That’s unchanged from last week and unchanged from a year ago. The market has been stable at this price point for several weeks now. Prices tend to cluster around the big round numbers. They’ll start receding for the back half of the year by mid August, I expect.
The price of the new listings rebounded this week to $425,000. That’s up 5% for the week. If you recall last week the new listings were priced under the previous year. After the rebound the new listings are now back above last year by 6%. There’s obviously a little noise in that measure, bounces around week to week a bit. The new listings are a leading indicator of the market, the homes that get listed for sale take into account everything the sellers and listing agents know about their local markets. In aggregate those sellers tell us exactly where demand is for the homes. So it’s worth watching these closely and the indicators are showing prices supported at these levels.
The median price of the new sales that happened this week (that’s the median price of the newly pending cohort) is $389,900. That’s the chart we’re looking at here. These are the homes and the price point that people are buying. This measure of home prices is still 3% more expensive than last year at this time. The price of these newly pending home sales passed its peak way back in May and has been easing down each week since. We can use the comparison with 2022 to see how there’s maybe less downside signal in home prices in 2024 even as demand remains weak. I’ve highlighted the two moments in 2022 when mortgage rates took a big jump and the price buyers were willing to pay dropped suddenly. It happened in June and again in September 2022. That kind of price correction is not underway now, but it would happen if rates were to jump back up over 7% again, it’s easy to imagine that would be felt really quickly by already hesitant home buyers.
We’ve been talking about the slow sales pace but most measures of home prices still show some annual appreciation. It’s slow, but it’s generally up. Here’s a bonus view chart for the week for home prices to see how this year stacks up to others. This is looking at those sales price changes from the start of the year to now - year to date. These are the new pending sales each week. Home prices climb in the first half of the year and recede in the second half of the year. All the annual gains for home price appreciation happen typically by June. The lowest prices for the year are over the New Years holiday.
When we plot out the year to date price changes for each of the last three years, you can see how home prices in 2024 are up but have underperformed. The headlines have continued to report surprisingly strong gains over last year at this time, many are still reporting 5-6% home price appreciation over 2023. But this view seems to me to show that those headline price reports will have to compress in the coming months. 2022, the light line here, had a very strong first half at the very tail end of the pandemic boom. Then in June there was that leg down in prices I just mentioned. Last year started out weak but ended stronger and 2023 ended with 5% home price appreciation.
Now look at this year’s curve. That’s the dark line. Showing limited growth all year and trending lower now. With this curve it’s hard to imagine gains in prices this year. It’s one of the indicators why I continue to expect home prices to finish 2024 flat or maybe up just a hair over 2023.
Since the sales that are happening now are just 3% more expensive than those from last year, and the strength of the home sales season is behind us, it sure seems to me that 2024 will end in the 0-3% home price appreciation range.
And finally this week, our weekly look at the price cuts data. 38.6% of the homes on the market have taken a price cut from their original list price. That’s up 30 more basis points for the week. This leading indicator of future sales prices isn’t accelerating very quickly. It’s elevated, which shows the obviously weak demand. There’s no signal of increasing demand. As mortgage rates have dropped, and if they drop further and stay persistently in the mid 6s, that could change, but it hasn’t changed yet.
It’s notable here that we’re about to cross over with the 2022 line. In the second half of 2022, there was a lot more price pressure. Price cuts were still climbing by 150 points per week. Now they’re climbing by 30 basis points. Home prices are not crashing, they are flattening.
Interestingly the dollar amount of those price cuts is $20,000 that’s 5% on a typical $400,000 home. That’s the same price cut amount as last year, but in 2022, when the brakes were really slammed, the median price cut was $24k. So add all these together and we get a pretty clear image of where home prices are heading for the rest of the year.
And that’s why we do this data work each week. Mortgage rates stayed higher for longer than anyone anticipated this year. Maybe we’ve finally turned the corner? If we’re lucky? For buyers and sellers, these conditions can change fast. They need to hear the data from you so they know how to respond. You should join us at Altos.
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