Housing Inventory is Declining Again

Very few homes are being listed for sale right now. This is the first week since the winter where inventory declined week over week. It’s not uncommon for inventory to plateau in August and September, with a little up and down week to week before declining significantly starting in October. So, assuming this year follows some normal historical patterns, we could see a few more weeks with inventory increasing, but we’re basically at the peak of inventory until next year at this time.

As we’ve been pointing out lately, this means we’ll start 2023 with a pretty severe shortage of homes for sale. More than last year, but fewer even than the first pandemic year 2020. The fact is homeowners don’t have to sell and they’re not. If you’re already a homeowner, you have a really good deal with equity and mortgage rates. If the economy slumps into recession, we’ll likely see some more sellers but even that seems unlikely to yield a big surge of new listing inventory. We’ll keep watching each week to see if anything like that materializes.

Every week Altos Research tracks every home for sale in the country. We analyze all the pricing, supply and demand, and all the changes in that data and we make it available to you before you see it in the traditional channels. If you aren’t using Altos market reports with your clients, your buyers and sellers, now might be the time to step up. Go to AltosResearch.com and book a free consult with our team. Because everyone is worried about what’s happening right now. They need you to help them see clearly.

I’m Mike Simonsen, I’m the CEO of Altos Research. I took a week off last week for the last vacation of the summer, and here’s what we’re looking at for the week of September 6, 2022.

Real Estate Inventory

Available inventory of homes for sale dipped this week to 553,000 single family homes. That’s 1% fewer than last week. Declining inventory right now isn’t a sign of big demand like it was last year, it’s now a sign of restricted supply. It probably shouldn’t have surprised me, given that homeowners have been not selling their homes for the decade.

But frankly I assumed that this summer and fall we’d have significantly more inventory available. I presumed that we’d have some sellers panicking and listing their houses even when the buyer demand stopped cold. But that’s quite obviously not happening. Since the first week of July there has been no surge in inventory. Sellers are simply holding onto their super cheap mortgages and high rents.

For the rest of the year, we’re projecting not many new listings and also not many sales so we expect the annual decline in inventory to be much gentler than previous years; almost flat. Most years available inventory declines steeply between now and January 1. It seems quite obvious that we’ll start 2023 with fewer than 500,000 single family homes on the market.

Buyers will be facing very limited selection. This is why I’ve been saying that for buyers in the market now, it probably doesn’t make sense to wait in hopes of greater bargains coming soon. There is not going to be a lot of choices. Mortgage rates are unknown, so if you find a house now that you love and that you can afford, then I don’t see anything in the data that implies that suddenly things will be even better in the future.

The trend to watch for inventory next will be whether supply follows this flat curve, or whether it dives deeper like normal years and then after the first of the year, do sellers come to market trying to unload, maybe as they anticipate recession or other economic challenge for the coming year? Or do they continue to hold on to the great investments that they already have?

Home Prices

Home prices are ticking down. This is a seasonal change, it happens every year this time of year. The median price of single family homes in the US fell by 1% this week to $440,000. As the seasonal home price decline transpires, we can expect prices to settle in under $420,000 by the end of the year. As we’ve been saying all year, that’ll be about a 10% price gain over 2021.

One of the reasons no one wants to sell their house is because everyone has so much equity. We’re in a very funny media cycle right now. The common perception is that the economy is a wreck and that everyone is hurting. But *I’m* doing well. Everyone else is hurting. This misperception leads us to assume that homeowners are in rough shape, when in fact they’re in the best shape ever.

You can see the shift in demand in prices of newly listed properties each week: it's currently down to $389,000. We’ll watch this number most closely after we turn the start of the new year. At that point we’ll be able to gauge whether demand is coming back in 2023 or whether it stays cool and prices remain flat. You can see each year how the light red line declines notably in the second half of the year. So this year’s decline isn’t at all scary but it also shows that we have no strong demand and no driver for price increases next year.

Home Price Reductions

We had an uptick in price reductions this week. Currently just over 40% of the homes on the market have taken a price cut from their original list price. Price reductions will continue to climb through October as the homes on the market now look to find buyers.

If price reductions climb to say 45%, that will be pretty bearish signal for the market in 2023. That implies very few buyers and prices will have to adjust down. For homes that cut their list prices now, those are lower transaction prices when the sales happen some time in the future. Boise, Phoenix, Austin, and the Utah markets top the list of price cuts. Those markets will definitely see lower home prices in 2023.

Using our immediate sales tracker to illustrate the new listings and how few homes are available for sale right now. We had the fewest new listings this week than any time since the middle of winter. Now it’s the Labor Day holiday and we’ll have another week with lower inventory when the data comes out. Fascinating times.

It’s hard to say who wins this battle buyers or sellers. My gut says that buyers who are well financed will be much more able to make offers and get homes they want. It’s a much more healthy market than a year ago. Sellers though will keep staying away, preferring to hold onto their homes and investments and that limited selection will drive a lot in the coming year.

The fact is this wild real estate market is puzzling everyone. The only thing we can do is watch the data and learn as quickly as possible where supply and demand leads us. If you have buyers and sellers looking for guidance right now, make sure you get them the data so they can see for themselves what is happening in your local market. Even in those most hard hit markets, we maybe can see the slide slowing. Your buyers and seller need to know that. Go to AltosResearch.com and sign up so you can get the data in your hands and in your clients hands today. 

That’s all the data for this week. Back on normal schedule next Monday. See you then.