How soon will spiking mortgage rates hit homebuyers?

If it were possible for the US housing market to get weirder, it is happening. Some unique measurements happening this week in the data that we’ve never seen before. 

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. Traditional real estate data is released monthly, so by the time it gets to you it’s kinda old news. The news right now is that home prices are still surging and the effects of higher mortgage rates have not set in yet. 

I’m Mike Simonsen, I’m the CEO of Altos Research. Let’s look at the data and see the details for the week of February 14 2022. Happy Valentines Day.When we talk about surging home prices, this is what we’re looking at.

Never Before Seen in the Price of New Listings

The price of the new listings - that’s the homes that just hit the market - this week jumped to $389,900. The new listings price always surges this time of year as the best new inventory gets listed and the most buyers are gearing up for the spring home buying season. A surge in the price of the new listings is not unusual.

What’s wild is that the price of the new listings has jumped for the first time above the price of the whole market. The median price of all the single family homes in the US this week is $379,900. 

Astute watchers of the Altos data will notice that the price of the new listings is always less than the price of the market as a whole. That’s because the velocity of sales at lower price points is faster. More listings and sales: the more expensive homes take longer to sell.

So in any given week, the price of the newly listed cohort this week is less than the whole set on the market. As the market heats up, the price of the new listings spikes. Sellers and listing agents know the demand and price their listings a little higher to capture that demand. 

This week for the first time ever in 16 years of the Altos Research data set, the median price of the new listings is higher than the price of the whole set already on the market. That’s because of low total inventory, the expensive homes are selling fast too, and because we have this huge February demand so sellers are pricing up. Pricing is always strong this time of year, but this is really really strong. This is something to watch in the coming weeks.

If the price of the new listings stays elevated in the coming weeks, that’s a very bullish sign for future sales prices. This pricing is registering current demand. These are buyers now who locked their mortgage rates in December and January.

Mortgage Rates

But of course simultaneously, mortgage rates have spiked their fastest spike ever in the first 7 weeks of the year. Rates are climbing quickly in 2022 versus recent history. Going to be fascinating to see if this jump is enough to put the breaks on the crazy hot demand. Rates up this fast means buyers have lost about 5% of the affordable price on a home for the same monthly mortgage payment. Assuming rates stay on this curve, we’ll start to see the market implications later in the year.

We reviewed these implications of rising rates and our forecast for inventory in last week’s Altos Research webinar. The replay of that webinar is now on the Altos YouTube channel and details are on the Altos blog. If you’re interested to see how much inventory is likely to climb this year in the face of rising mortgage rates, check out that webinar.  

Record few available homes on market

When we look at the current active inventory however, as of right now we hit a new record low of available homes on the market. There are under 250,000 single family homes on the market across the US right now. With another 70,000 that will get listed this week. Even as rates rise, it’s going to be really hard to get significantly more inventory.

In fact, this inventory number in recent weeks is declining more quickly than expected. This decline is in part due to new construction and the global supply chain challenges. New construction that is nearly complete would normally be counted in active inventory. These projects are now being delayed due to slow supply chains. Many of these homes are delayed all the way into 2023. Especially in places like Texas where a significant portion of the inventory is new construction we can see this acutely.

The way we view it, if a home isn’t going to be completed until next year, it’s not actually active inventory right now. You can buy the property, but you can’t live in it yet. So we’ve removed them in this count of homes you can buy today. 

Record Few Foreclosures

Another reason that inventory continues to be restricted is because we have no homes in the foreclosure pipeline. This week across the US we’ve hit a record few homes in any stage of mortgage delinquency. Record few people are facing foreclosure in this country. Because we have record levels of equity and record cheap mortgages set over the last few years. We have big employment. And we have inflation. So record few homes are underwater, therefore we will have no distressed sales any time soon, for at least the next few years - to add to inventory. There are no short sales if no one is short.

Even as rates rise that only impacts the new buyers. Existing homeowners are locked in. Again rising rates will add to inventory, but not a ton. Anyway, check the webinar from last week for the details. 

Immediate Real Estate Sales and Price Reductions

We can see why the price of the new listings is so strong when we look at the immediate sales tracker. About 30% of the homes that got listed for sale last week went into contract essentially immediately. As I mentioned, these are buyers who have been shopping, maybe have been outbid on previous sales and are ready to act quickly now. They also see rising rates and know that they want to get their deal done before it gets more expensive.

Finally this week, the leading indicator of price sensitivity that we want to keep watching as rates rise is the price reductions: the percent of homes on the market that have taken a price cut before they sell.

There are always some price reductions. Right now, as you might expect we’re at record few price reductions for this time of year. Normally a third of homes takes a price cut before they sell, right now it’s only 18% and falling. If consumers feel the pinch of higher mortgage rates, we may see price reductions claw their way back closer to normal. We’re a long long way from any bad news of course. 

OK that’s all the data for this week. To get your local data for your buyers and sellers, go to AltosResearch.com and join us. You can get your local market data into your clients’ hands today. It’s that easy.

Because everyone needs to know what’s happening in this crazy market and the market is changing fast, it’s your opportunity to help people succeed. Also this week a new Top of Mind podcast episode will be available Wednesday. And last week’s webinar recording is available on the Altos Research YouTube channel. So much great stuff for you. I appreciate you being with us. More next week!