Mike Simonsen is the founder and president of real estate analytics firm Altos Research, which has provided national and local real estate data to financial institutions, real estate professionals, and investors across the country for more than 15 years. An expert trendspotter, Mike uses Altos data to identify market shifts months before they hit the headlines.
Big 8% increase in inventory this week. We’ll take some time to see how unprecedented, or not, that move is. Home prices are strong - new record high actually. What’s going on out there? Let’s take a look.
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Here’s what we’re looking at for the week of May 23 2022.
Real Estate Inventory is Up
Inventory growth is the story of the day. Available inventory of unsold single family homes in the US rose 8.2% this week, to 344,000 homes. That’s an increase of 26,000 more homes for buyers to choose from than last week. Is that the biggest ever jump? At an absolute level it is not unprecedented for inventory to grow by 25,000 in a week. But since we’re coming off the record lows, as a percentage, that maybe the biggest jump we’ve seen. At 344,000 homes we now have 6% more than last year. Climbing very quickly.
In the past, we’ve done some work that shows how year over year inventory change is predictive of price changes another year in the future. Inventory rose a little between 2018-19. Prices barely rose between the spring of 2019 and 2020 - until the pandemic hit and changed everything.
Based on the fact that we’re seeing solid year-over-year inventory gains now, it’s really looking like home prices will be flat next year in 2023. I don’t usually speculate on home prices that far out - there are so many economic and other variables between now and 18 months that it’s almost random. But based on this signal - I’d bet on unchanged home prices 2023 over 2022. I don’t see any signal of home price crash. And it’s way too early for me to set that in stone, but that’s what it looks like.
I have a few other things to note about this week’s inventory change. In 2020, the pandemic year, inventory fell almost every week all year long as Americans bought everything in sight. The spike in inventory is quite commonly the third week of May. We had our biggest inventory gains of the year just now and that is totally to be expected.
In 2016 the spike was bigger - 27,000 more homes listed that week, and that spike actually was in April of that year. But as a percentage change, that was only 2.5%, not 8% like today. So, this tells us that we can expect inventory to grow, but don’t bet that the trajectory parabolic. I don’t expect repeats of this week.
If we see these spikes continuing or getting bigger from here, that will be a big signal. But - more inventory, more selection for buyers, slower market times, and we can forecast a much more seasonal return to normalcy later in the year.
Normally you’d see, for example, an inventory dip at the holidays--Memorial Day and the 4th of July. This year we’re forecasting a slowing of inventory growth those weeks, but not a drop like normal years. The big difference is how that will feel to sellers who are watching the insatiable demand of the last few years finally be satiated.
Immediate Real Estate Sales Tracker
And this is how that new supply growth looks in the immediate sales tracker: This week 27,000 of the new listings went into contract essentially immediately. That’s a lot of homes, still a lot of bidding wars, a lot of pent up demand.
But because we had so many total new listings hit the market this week, the percentage of immediate sales continues to decline each week. Lots of immediate sales, but slightly smaller than last week. We’re at 24% of the new listings selling immediately. Last week was 25%. Last year was 26% of that set. That is tapering off. I would say immediate sales came in stronger than I expected this week. I expected us to see a more abrupt slowdown, but it’s proving to be gradual when taken in aggregate across the country.
OK - on to prices. We hit a new record high for home prices this week at $443,000 for the median single family home in the US. Remember how I said that home prices now can be seen as a function of inventory changes fro a year ago? Well a year ago inventory was plummeting so it’s no surprise that home prices are 11% higher than last year at this time. I do expect that we’re finally at the summer pricing plateau.
Somewhere around this $440,000 range for the mid summer. Last year we plateaued at $399k for the summer. 2020 prices kept rising but that’s the anomaly year. It is notable that the price of the new listings has not yet declined. Normally by this time of year that cohort has plateaued already. I think this is the same phenomenon as we’re seeing with immediate sales.
There are still lots of buyers. Many of them line up their financing a long time ago and are only now finding their opportunities to buy. That demand is real and has only just started to ease off.
Housing Price Cuts
Some of those listings aren’t getting the offers they’d hoped for and they’re taking price cuts. Percent of homes on the market with price cuts rose to almost 22% this week. It looks like by end of summer we’ll be back into our normal 30% range. This will feel scary for sellers but it’ll be actually very normal.
I would like to point out that four of the West’s most skyrocketing markets of the pandemic: Idaho, Arizona, Utah, and Nevada, are at the top of the price reductions lists now. This tells us that the biggest ones on the way up will also be the first to slow. As homes sit a little longer, that’s when the price cuts happen. We can see that market time is starting to tick up across price points and will lead to more price cuts soon.
Again, this is how the market moves in phases: as inventory builds now, we’ll see price reductions and that leads to a decrease in the price of the new listings. If we approach the end of the year with 37% price reductions like we did in 2018 - that’s how we can foresee no home price growth for 2023 like 0%. But that’s a long way off.
As of right now - Inventory building rapidly. It’s the third week of May and that happens like clockwork. This is a bigger jump, percentage-wise, than in many years and it really shows how the market is changing.
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