Inventory and Home Sales Showing Improvements Over 2022

New listings volume and the weekly sales volume are now running at a slightly better pace than the same week last year. Both have been below 2022 all year long. When we started the year, sales were running 30% fewer than last year. But we’ve finally recovered the pace, and the data now implies the sales rate for 2024 will be greater than this year. In last week’s video, I said that this may be the bottom of the housing recession. It’s only one week later… but the pattern seems to be holding.

When I make this projection, that we’re not losing ground any more, and that home sales for 2024 will tick up, that’s based on one big assumption: mortgage rates don’t rise from here. I don’t forecast mortgage rates, and they could absolutely rise. If rates rise substantially, then the forecast is for home sales to fall further. Note that we’re talking about the number of home sales, the transaction count. I’m not talking about home prices in this statement. Home sales look to improve in 2024, we’re probably at the bottom, assuming mortgage rates don’t jump back up from here. 

Let’s look at the US housing market data for the week of November 13th to see what the market signals are telling us.

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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 November 13th. Please refer to the video below for all the charts I mention in this transcript!

Inventory

As we suspected last week, available inventory of unsold homes has indeed topped out for the year. There are now 567,000 single family homes on the market around the US. As buyers pulled back this fall after the latest mortgage rate jump, inventory grew. The total count of homes on the market inched back closer to last year’s level. We’re now at the same number of homes on the market as last year at this time.  Inventory has been climbing very late in the year. November inventory increases are very unusual and reflect the unaffordable situation for homebuyers. But this fall’s inventory increase has completed and we’ll see a normal decline in the number of homes on the market until after the new year. 

In this chart each line is a year, see how the dark red curve has reached last year’s level. Inventory will now fall each week through the end of the year and we’ll finish the year with just slightly more homes on the market than the end of 2022. Remember that many markets are still in pandemic lows of available supply of homes to buy. I’ll spend some time in the Thursday webinar exploring which markets have been most sensitive to this crazy mortgage market and which are holding up the best. 

New Listings & Immediate Sales

As I mentioned earlier, we’re at a threshold of listings and sales volumes. Each week is going to be easier to compare with last year’s very low levels. So each week we’ll likely be able to report year over year growth in the weekly sales. Last year at this time new sellers each week were just slamming on the brakes. This year we still have very few sellers but they’re less panicky than they were a year ago. So the transaction volume will start ticking up compared to last year.

This is a view of supply. In this chart each bar is the total number of new listings each week. The taller the bar, the more sellers. I’ve included the dotted lines for annotation so you can see that this week they’re 66,000 new listings. Last year there were only 62,000. This week of the 66,000 11,000 are already in contract. Those are our immediate sales. The light portion of the bar are the immediate sales each week. They were listed, had buyer offers, and went into contract within a couple days of listing. 

Yes we had more new sellers this week than last year. This is good, because it means more selection for buyers and ultimately means more home sales transactions. 

There are signals to watch here in our immediate sales data if you have a bearish hypothesis about the housing market. If you’re worried we’ll see a flood of sellers next year, that we’ll get out of balance with more supply and fewer buyers, if that’s your fear, we should be able to see the signals very quickly in this chart. Here’s what I’ll be watching for: See how in the second half of the year, New listings peaks in July and starts ticking down. Last year it was a dramatic drop after July. This year, the number of new listings each week was low and trended lower. Because we had so few sellers we by definition have had very few sales. So signal number 1 is do these sellers climb unseasonably fast? We want to see more sellers next spring for more sales in 2024, but how many more? If this chart starts shooting up, that’s worth watching every single week. I suspect in the spring it’ll climb but not too fast. I’ll be watching to make sure.

The other signal is how many of those new listings get sold immediately. We’ll be watching the light portion of each bar. This week we had more sellers than the same week last year, but we also had more immediate sales. In other words, buyers leaned into the new supply and the net impact to inventory wasn’t very big. Those immediate sales are not available inventory, they’re already gone off the market. Right now we see more sellers over last year, and also more buyers. But if we watch this chart and sellers are rising but immediate sales are shrinking that would be a bearish scenario to watch for. 

Sales Rate

The other way to look at demand is to watch the new sales rate, these are new contracts pending week by week. This week 52,500 single family homes sales contracts started. All year long the sales rate has been running fewer than last year. Recently though sales have been no longer dropping year over year. This week in fact had more sales, slightly better than the same week a year ago. This isn’t consistent enough to call it a trend yet. Just early indication of a better 2024.

Sales drop each week through the end of the year before resetting in January. It’ll be fun to watch if this trajectory is durable. Consumers are more sensitive to changes in rates than to rates themselves. We had a good couple weeks with mortgage rates and the pace of home sales picked up, but again, mortgage rates absolutely could reverse and slow buyers. 

You can see the uptick at the far right end of the chart. This year is the dark red line. Last year is bright red. All year the dark line was running below 2022. Fewer sales all year long. We started the year with 30% fewer sales. Now it looks like we’ll end the year on pace or maybe slightly better pace than last year, setting 2024 up for increased home sales over 2023.

Price Reductions

Price reductions have also basically topped for the year. Currently 39.2% of homes on the market have taken a price cut from their original list price. That’s a lot. It’s reflective of weak home buyer demand and really unaffordable conditions. The market has fewer price cuts than last year at this time and that bodes well for future home sales prices. There isn’t much signal in the data that implies that home prices will fall the way they did a year ago. Again, consumers reacted to changes in rates rather than the absolute levels. Mortgage rates are higher now than last year, last year they changed faster. 

Last year mortgage rates fell very quickly in November and December and that freed up a lot of buyers in the spring. As a result the dark red price reductions curve at the left side of the graph, fell quickly. That was a solid indicator that home prices were no longer falling. That signal took many casual observers by surprise. So this will be an important indicator to watch after the holidays too.

Home Prices

The median price of single family homes in the US now is just a hair under $430,000. Home prices are running a couple percent higher than they were a year ago. That pattern looks like it’ll hold through the end of the year and we’ll see how buyers feel about affordability after January 1. 

I’ve included the dotted line annotations in this chart so you can see how prices this year compare to how they were faring at the end of last year. Last year home prices were adjusting down much more rapidly than they are now. These trends indicate that they’ll continue. There’s nothing in the data that points to home price strength of course. If mortgage rates were to fall substantially, like back under 6% or something, I anticipate that would spur demand, inventory would fall and home prices would rise. Those signals are not in the data, because mortgage rates haven’t fallen. So that’s just a scenario for home buyers to keep in mind if they’re on the sidelines waiting for improvement in mortgage rates.

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