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How far will home prices drop before January?

By Mike Simonsen on December 12, 2022

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Mike Simonsen

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.

Home prices are ticking lower as the end of year approaches. The low point of home prices each year is the second week of January. Will that be the case this year?  Will be interesting to watch. That’ll be a real signal if home prices keep falling after January 15. As we’ve been saying it probably depends on where rates are at that moment. Rates have settled in the 6% range, but we’ve been observing that 5.5% is probably a significant threshold for affordability for American home buyers. We’ll keep watching all this data to report what happens next.

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. The data we cover here in these national videos is available for every zip code in the US. Join us to dive in.

I’m Mike Simonsen, I’m the founder of Altos Research. Here’s what the data looks like for the second week of December 2022. 

 


Real Estate Inventory


Total available inventory of homes for sale right now in the US is 535,000 single family homes. That’s down 2.5% from last week. These weeks between Thanksgiving and the new year holiday are always when inventory falls most rapidly of course. This week’s decline was slightly more than our very conservative model had predicted, as some homes are selling, some are being withdrawn from the market, and there are very few new listings to add to supply. The decline in inventory is being accelerated by slightly lower mortgage rates than that absolute freeze out period in September and October when rates were above 7%. At the far right end of this chart you can see how inventory bumped up during that period and is now resuming a more normal seasonal down curve.

Unsold inventory of homes on the market is 58% higher than last year at this time when we were at record lows. We’re down 7% off this year’s peak in late October. So that’s starting to be significant. And we still have 36% fewer homes on the market than we did at this time in 2019.  The difference between now and 2019 isn’t changing much at the moment. Staying 36% fewer. Which implies that we’re on the same seasonal trend as we were then pre-pandemic. One signal to watch after the new year is whether we keep closing the gap in homes for sale between now and the pre-pandemic normal levels. If rates move higher, buyers will cool again and inventory will climb.  

 

New Listings

 

Even though demand has cooled way down, supply continues to be incredibly restrained also. This week had fewer than 50,000 new single family listings, a handful of which sell immediately. Those new listings that sold immediately are the light portions of each bar in this chart.  You can see at the far right a little rebound after the thanksgiving weekend, but it’s still 28% less new supply than the same week last year. Last year’s inventory was so low because Americans were still living in sub 3% mortgages and buying everything they could with the bargain they knew they had.  That psychology is flipped on its head now with sellers holding back.

We have four more weeks of rapidly declining new listings and then the first upturn at the second week of January. 

Next week will see a little rebound in listings, but it’s still trending lower through the end of the year. 

 

Pending Sales


Total pendings count is now 35% fewer than last year at this time. That’s the total number of homes in contract, no longer listed; they've taken offers but they’re not yet sold. This I think is the real story in the data right now. We can see how few new transactions are starting and how few are in the pipeline to complete. We have 5.7% fewer homes in contract than just last week.

These numbers always fall over the holidays, but you can see how we’re 35% fewer pendings now than last year at this time. This is the leading indicator for sales transactions that will close in January and February. It’s very slow. 

Home Prices


The median price of single family homes in the US is marching lower each week as we’ve already covered and have been expecting. The median price is now $415,000. We have 4 more weeks of price declines until the second week of January.  Should be right around $400k before prices turn up for the spring. Every year prices jump a little between the second and third week of January. Every year. It’s very reliable. So if you want to test your bearish hypothesis, watch that moment. There are homes preparing now to list after the holidays. Essentially always they come in, we have a little new listings spike and prices tick up too that week. If this year they don’t, that’d be a bearish signal for where buyers are or aren’t now. 

And frankly, I could imagine a world where prices don’t jump this coming January.  Price declines across the US have been seasonal this year but have declined more than normal in many of the bubbliest markets. So if enough buyers in Austin and Phoenix stay on the sidelines in January, maybe price declines continue to inch down. That’s why I say keep your eyes on that moment to test your bear market hypothesis.

The price of the new listings rebounded this week. Which is totally normal after Thanksgiving. And this is why I’m still expecting prices to tick up in January. This normal behavior here implies to me that the market isn’t so far out of whack that home prices would keep marching lower in Q1. Remember, to have negative price appreciation in 2023, we’d just have to have a less steep upslope in the first quarter. That’s what I’m expecting.

 

Home Price Reductions


Price reductions are also down this week trying to act with normal seasonality. Currently 42.1% of the homes on the market have had a price cut recently. No surprise that’s a lot more than recent years. You can see the dark red line here.  Price reductions peaked with interest rates in November. They moved higher in September with rates too. This is a really useful signal for buyer demand. Rates spike, no bidders, I have to cut my price. Rates ease, some sale happen maybe I’ll hold off on the price cut. We’ll probably end the year with about 40% with price reductions. This eases lower in the first quarter because new inventory comes on, is good quality and is priced right for today’s expectations. Unless mortgage rates spike higher, then we’ll see demand cool and price reductions ratchet up as well.


This is of course national data and the local markets are behaving very differently from each other right now. If you need to get your local data to your buyers and sellers right now, you should join us at Altos Research. Go to AltosResearch.com book a consult with our team to learn how to interpret this crazy market for the people who need it most right now.  They need you to be the expert for them.

If you're interested in keeping up with the housing market, I also encourage you to sign up for our weekly real estate market updates. Every Monday, I break down all the latest numbers on home prices and inventory, and look at the trends we can see in the Altos data weeks or even months before you see them in the headlines.

 

You can also run a free Altos real estate market report for any zip code in the U.S. and receive an update on that area in your inbox every week.

 

And, if you want to learn how to read and interpret all the stats in the report, I encourage you to download our free eBook: "How to Use Market Data to Build Your Real Estate Business."

See you next week!

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