Home sales and home prices have been improving for several weeks. Unfortunately, this period could be fleeting, because we had strong economic news last week. And ironically a really strong employment situation in the country actually drives the bond market to higher rates. So after the recent lows with mortgage rates, this week the 30-year fixed rate jumped back up over 6.5%. We can already hear that the few weeks of September refinance boomlet has backed off. The purchase market is slower to respond, and the data now is still showing the positive impact of lower mortgage rates of recent weeks.
Mortgage rates bounced back up over the last couple days, and it demonstrates how fragile this housing market recovery could be. The fact is that as mortgage rates fell closer to 6%, home prices and home sales have been showing pretty obvious gains over last year. The leading indicators like price reductions have topped out. Even the withdrawal rate of frustrated home sellers declined over the last month.
Last year was really low in terms of home sales. There were very few buyers in the fourth quarter last year. So having more now isn’t like a big accomplishment, but it shows that consumers do in fact get a little more motivated as the cost of money gets a little cheaper. And conversely if mortgages don’t stay cheaper, we’ve seen home buyers very willing to wait. The conventional wisdom is that mortgages will generally move lower, but there’s no reason that must be true.... as evidenced in the last few days.
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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 7, 2024. Please refer to the video below for all the charts I mention in this transcript!
Let’s start this week with home sales. There were 61,000 new contracts pending for single family home sales. That’s down a bit from last week but almost 6% more sales than a year ago. There were another 12,000 condo sales started this week.
This is now the second week in a row where home sales are coming in greater than either of the last two years. Those years were very slow in sales and as I said a little growth over last year isn’t like a big accomplishment. But it does illustrate how consumers react to cheaper money. In this chart of the newly pending home sales each week, see this year’s dark line is now above each of the last two years. In 2022, the light red line here, you can see how quickly homebuyers hit the brakes as mortgage rates surprised again in September and October of that year.
This year we had a great trend of declining mortgage rates, but that strong economy drove rates higher in the last few days. That’s why I’m worried about the durability of any sales recovery we’ve seen. Homebuyers are not afraid to wait.
At the same time, prices have been holding up better than I expected for much of the year and this week continued the trend. Home prices have moved up for four weeks in a row. I did not anticipate this strength.
We’re looking here at the prices for newly pending home sales each week. See the dark red line at the top of the chart. The median price for the homes that people are buying - those that went into contract this week is $395,000. Like I said, it has surprised me that four weeks in a row now, this measure of home prices has ticked up. In general one would expect home prices to ease down in the fall.
These new pendings prices rose by 1 and a quarter percent this week, to $395,000 and are 5% greater than a year ago. New pendings prices have been hovering 3-5% greater than last year. So this is in the upper end of the range after a month of slightly improving demand.
In the last two years when October had sharply higher mortgage rates, home sales were tanking and prices were dropping too. I’ve highlighted here in gray the times in the last two years when home prices plunged. Home prices dropped 7% in October 2022. The opposite is happening now. In this view it’s pretty stark. Now, I don’t expect this to continue. Home prices are not skyrocketing through the winter. It is, after all, autumn. But this is a stronger signal than I expected for resilience of the home buyer. This is the price point people are buying. This recent trend implies that the yearly home price appreciation has a little more room than I’ve been expecting all year. It’s also a reflection of the fact that mortgage rates finally fell closer to 6%. But suddenly they jumped again. So we’ll see how quickly that reverses this trend.
The median price of all the homes on the market is now $440,000, that’s unchanged from last year. So where the new pendings price is up 5% over last year, the asking prices are unchanged from last year. That creates an overall picture on home prices with 0-5% appreciation. I’ve been assuming that the year would finish closer to 0% appreciation over 2023, but now I’m leaning closer to 3-5% gains. There are still a lot of variables to play out before the end of the year.
The available inventory of unsold homes on the market ticked up to 734,000 single family homes. That’s up half a percent for the week and is 36.7% more homes on the market than a year ago.
Inventory looks like it has probably 3 more weeks of growth. Through the end of the month. Inventory grew by less than half a percent this week, so nationally it seems to be approaching the seasonal peak. If mortgage rates keep climbing from 6.1 to 6.5 to 6.6 or closer to 7% then that will slow demand and it’ll drive inventory higher for longer. As the last two years have shown, rising rates late in the year can drive inventory higher all the way to late November.
Some of the sun belt states, like Arizona, Texas and Florida haven’t topped out inventory yet. Texas has 44% more homes on the market than last year and 24% more unsold homes on the market now than in 2019. Arizona has 70% more homes on the market now than a year ago. Nationally we have 36.7% more homes unsold than last year, but we’re still 23% fewer homes on the market now than in 2019. There are 8 states with more inventory now than in 2019. But in most of the country there are still fewer homes unsold on the market. We’ll cover this in detail on Thursday in the webinar.
In this chart, you can see that inventory is slowly reaching the pre-pandemic levels and you can see how quickly inventory can climb late in the year with spiking mortgage rates. See the red line from last year. That started growing in September and didn’t top out until the end of November.
There were 61,000 new listings unsold this week which is down a few percent for the week and a fraction more than a year ago. With only 8500 new listings immediate sales, it was actually slightly fewer total sellers than a year ago.
The immediate sales are at their lowest levels since we started tracking during the pandemic. These are the bidding wars and homes that get offers immediately after listing. These are the best homes in the best locations, that are properly priced and well marketed. So there are always some immediate sales. But It’s notable to me that while we’re measuring a slight pickup in total sales, and the prices being paid are holding firm, the urgency of buyers is not increasing. Home buyers are in a much stronger position than they have been in many years.
I use this new listings data each week to watch for any emerging imbalance between supply and demand. There are a lot of potential home buyers out there who assume that a flood of inventory is coming, that home prices will tank as a result. If we’re going to see a flood of sellers, the dark line here will have to climb. There is no sign of that happening. But that’s what we watch for each week. This week’s 61,000 new listings is still 10-20% fewer sellers than normal times.
We close with price reductions today. Just about 40% of the homes on the market have taken a price reduction from the original list price. This percentage has been staying flat for a couple months now. One way to measure the slight improvement in homebuyer demand over the last month is that price reductions haven’t climbed at all.
In the late season there are a lot of withdrawals, so homes that haven’t gotten an offer have two options: they can either take a price cut or withdraw the listing. At the end of August, we were measuring withdrawals at the highest level we’ve seen in a while. But since then that ratio has declined a bit. As I mentioned at the top of this video, rates fell closer to 6%, price cuts leveled off, withdrawals slowed, new pending sales ticked up, and prices ticked up. But now suddenly mortgage rates have jumped in the last few days, which could put a damper on all those trends.
Rates spiked in the autumn of 2022. At that time the pace of withdrawals accelerated, price cuts climbed too. In 2022 we transitioned from the pandemic boom to the post-pandemic era. Now it illustrates how fleeting any recovery can be.
It’s wild how quickly the sentiment can change in a week. We were maybe at a transition point to get some home sales growth, and suddenly we had very big mortgage rate spikes. Buyers can put the brakes on very quickly. It can be very impactful for smart decision making. They need to hear the data from you so they know how to act. You should join us at Altos.
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