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Why inflation may lead to fewer homes for sale in 2022

By Mike Simonsen on December 20, 2021

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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.

This is the week’s Altos Research real estate market report. Each 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.
 
It’s the solstice - I am very much looking forward to the days getting longer again. As we approach the end of 2021, we have two holiday weeks to measure.
 
Next Monday the 27th and the following Monday January 3rd will both have holiday data incorporated. We may take next week, December 27th off from this video. Hopefully getting some time on the snow with 3 generations of the Simonsen family. 
 
 
Today is Monday December 20, 2021 and here’s what the market is telling us right now.
 
The median price of all the single family homes in the US this week is $374,900 that’s basically unchanged from last week. Down just $100. You can see in the dark red line here each annual curve and we have just one more dip for the Christmas and New Years weeks and then prices climb in January.
 
Because of the holidays, that means fewer new listings, lower total inventory, and as you can see the price dips too. The annual reset in home prices is most notable though in the lighter colored line, that’s the price of the new listings each week. Over the holidays there are far fewer new listings and they’re priced at a discount.
 
The fun thing to watch here is this light red line: January 10, 17, 24th each of these weeks in January when we see the price spiking in anticipation of the buying in Q1 and Q2. You can see January of this year had a big steep climb and that’s one way we could see the home price gains for the year already baked into the data in January.
 
So if you’re looking to signals - will this market keep steaming higher or are we in for weaker demand maybe because the economy slows or rates rise? You’ll see it very quickly in the price of the new listings. 
 
Even if demand suddenly weakens, supply is still going to start the year at new record lows. There are currently only 326,000 single family homes on the market, that’s falling a few percent each week and will continue to fall sharply in the next couple weeks.
 
As we roll into January, inventory will be under the record low we set April 30 of 2021. Even if some factor comes and knocks our housing demand train off the tracks, we’re still in record low inventory.
 
If you’re still in the bearish camp on the American consumer and think that the homes in forbearance - there are still a few! - if you think there’s some inventory relief coming from those - man I don’t know what to tell you at this point. We may be finally beyond the pandemic forbearance debate.
 
In retrospect, that program did exactly as it was intended, which was to keep Americans in their homes in the face of this global pandemic. The unintended consequences of course is that it also prevented new buyers from having opportunities.
 
American housing policy often prioritizes existing home owners to the detriment of future ones. That’s the way it is, and that seems unlikely to change. 
 
Here’s another way to view inventory. Each color here is a year. Above the center line means inventory is building each week. Below the line are the weeks that inventory shrank (more sales than new listings).
 
Notice how each year in 2016, 17 , 18 , 19, pretty rapidly after the start of the year, the spring inventory jumps onto the market. Inventory grows for the buying season in the second quarter each year.
 
Then in the light blue, for 2020 we only had a few weeks of rising inventory before the lockdown and then the buying frenzy which gobbled up all the available homes. 2021 was unusual, the green on the far right, because that buying frenzy kept right on going until May. It was the first week of May before we had any inventory climb at all this year. 
 
Here’s what’s unclear to me for 2022. The real question on inventory is whether the market hits its low like normal in January or whether we’re in crazy mode again until April.
 
We know that demand has stayed strong through the winter, we know that supply is tight. What we don’t know is how quickly sellers will want to play into that strength come the new year. Does the hot market pull more sellers to take advantage of rising prices and big demand? So does active inventory bottom at 300k in January or at only 200k in April?
 
Here’s something to consider when you’re thinking about that question–we know that inventory has been falling for a decade because rates are so low, it has been a really good time to own a home. Even when we buy our next house we don’t want to sell the first one because it’s so cheap to hold. So the resale inventory keeps falling.
 
Now consider: in an inflationary economy, which we have right now, your fixed rate mortgage becomes even more attractive the longer you hold. That implies that 2022 will face new lows in available inventory. It also means even harder scenario for first time buyers. More competition for fewer homes to buy.
 
So the thing to keep an eye on here is how many new listings hit the market in January and February. I’ll bring this chart back occasionally to watch. It’s going to be wild.
 
As we’ve been trying to point out, any change in the market will show up very quickly in many of our stats including our immediate real estate sales tracker.
 
Of the 60 thousand new listings this week 18 thousand of them are already in contract. Think about what happens this spring if interest rates haven’t risen, but inflation has? Do immediate sales climb even higher as a percentage? That sure seems where the data is pointing us right now.
 
It’s kinda scary to be honest. In fact none of these early signals feel healthy to me. So I’m still hoping for a slightly slower market in 2022, but we haven’t seen signs of it yet. 
 
 By the way, while there are just over 300,000 homes active on the market this week, there are another 425,000 single family homes in contract pending state right now.
 
The median price of those homes is $355k. As fewer homes get listed and get offers these next two weeks, the pending count will tick down.
 
In the new year we should also be able to watch that demand trend in the immediate sales tracker and in the pending sales rates too. So much fun signal in January. 
 
 Ok - that’s all the data we have time for today. This week we have a fun new announcement from Altos Research to look out for. More cool stuff coming for you this year from Altos to help you understand the data if you care about the US housing market.
 
Keep your eye out for an Altos Research announcement this week. Thank you everybody. I hope you have a truly joy filled holiday time with friends and family. I appreciate you so much. Merry Christmas. More soon.

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