Inventory Growth Grinds to a Halt

Even as buyer demand slowed way down this year, home owners in America have decided they have no urgency to sell. It’s early in the change but sellers seem to be winning this battle. Home owners in America are is such strong financial position that very few are compelled to sell into a market with weak demand.

The result is dramatically fewer new listings each week, and tighter selection for those buyers that are out there right now. Week by week we’re watching this unfold. We’ll start 2023 still in the throes of this prolonged shortage of available inventory for home buyers. Sellers don’t have to sell, but the buyers are those who need to buy.

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.

I’m Mike Simonsen, I’m the CEO of Altos Research. Here’s what we’re looking at for the week of August 22 2022. Also, catch our next deep dive webinar in September.

Inventory

Available inventory of unsold single family homes is basically unchanged from last week at just over 551,000. No inventory growth across the country this week. In June we were seeing 6-8% inventory growth each week. That’s all gone. This is not at all uncommon for August. As the summer ages, school starts fewer homes list and sell.

The important thing to note is not that inventory isn’t growing. The important thing to note is that if your view of housing is based evidence from June and July, you’re probably drawing the wrong conclusion. What we now know is that we’re going to start 2023 as yet another year with a pretty severe shortage of homes for sale. It’s hard to get supply and demand out of balance when supply is so short.

The bearish case for the real estate market is if we enter a big deep recession. Lots of job losses. Unemployment grows and stays extensive. I don’t know if that’s coming. I don’t predict recessions. But I do know that once we have significant unemployment, it’s at least another year out in the future before the real estate market sees the resulting inventory from people who’ve lost their jobs and are forced to sell their homes.

Since we’re at very low unemployment now, let’s say recession hits hard and we have significant unemployment next year at this time. This implies that 2024 or 2025 before we see the inventory surge.

We discussed this timeline with Daren Blomquist from Auction.com in the Altos Top of Mind Podcast last week. Auction.com has some truly unique insight to how quickly a recession turns into homes on the market. Check that out. If you’re in the camp who is predicting an imminent housing market crash because you expect the economy to crash, prepare to be disappointed for 24 months at least.

We can see this remarkable trend in the inventory forecast model. As a result of each week with fewer than expected new listings, slower than expected inventory growth, it now looks pretty clear that we’ll end the year with barely 500,000 single family homes on the market.

There are 551,000 houses on the market now, and we’re allowing in this forecast a few bigger increase weeks before the end of the summer, with a peak of maybe 580,000. Each line here is a year. You can see the dotted line projects that we still have a few weeks of increased inventory still. And then over the holidays the decline will be slower than normal.

Just a few weeks ago, we were assuming inventory would already surpass the 2020 levels by now - mid August. That’s tan line here. Now it looks like it’ll be middle of September at the earliest. And really this projection could still be too high. We’ve been under shooting the inventory levels each of the last several weeks. If the year from here follows a more normal holiday curve, we could end the year about 450,000 homes on the market, and that would be incredibly tight for buyers in the spring.

Price Reductions

So that’s the supply side, what about the buy side? We’ve seen price reductions skyrocket this summer too. Suddenly homes that had multiple bidders are now sitting with none. Price cuts galore.

So, are sellers still loping their prices down to find buyers? The answer is surprising here too. As of this week 39% percent of homes on the market that have taken a price cut from their original list price. That’s only up only a fraction from last week.

You can see the slope of the dark red line has started to plateau. Each week some homes are selling, some are being withdrawn from the market, and some sell. This shows us the market is not deteriorating from here. From the slope of this curve you can see that we obviously have fewer buyers now than any time in the last bunch of years. But there’s nothing in the data that shows major price declines.

Real Estate Prices

If you’re listing your house now, you’re doing so at a discount to what you would have 6 months ago. The median price of the newly listed cohort fell by 1.25% this week to $393,900. Like our inventory plateau, this is seasonal. I expect the new listings prices to keep pulling back for the rest of the year. That’s the light colored line here. This is the median price of all those homes that hit the market this week.

You can see the yearly cycle, prices always pull back if you’re listing now after school starts. See especially the light red line in years 2017 or 2018 here. Big spike in the first and second quarters, then a pull back in the 3rd and 4th quarters. So what we’re seeing now is normal. It’s strong enough that it tells us we don’t have any home price gains on the horizon probably for 2023.

The median price of all the homes is 449,000 which is unchanged from last week. Which is also normal for the late summer. There’s lots of room for the median home price to retreat for the rest of the year and still land in the 10%+ price gain for all of 2022. It’s funny because it feels like this measure of home prices is moving slowly. Just remember the headlines will be still in the mid teens for several more months.

Immediate Sales

Measuring supply and demand in the same view, the immediate sales tracker shows a sharp decline in new listings each week Since July 4. New sellers just aren’t interested in testing this market. And why would you be? Everyone in the country has a cheap mortgage and a ton of equity. Rents are very high. All those things add up that it’s a very good time to own real estate. No one feels urgency to sell. With just over 80,000 new single family listings this week, that’s significantly slower market than last year at this time.

It’s fascinating that we still have some immediate sales happening. That’s the light portion of each bar here. Probably because inventory is so limited, that the best homes, priced properly are still able to get their offers and go quickly into contract. If you look into the state level here, you’ll see that Georgia, North Carolina, Tennessee are places where we’re seeing more of those immediate sales than in places like Arizona, Texas or Florida.

Maybe this implies the speculators have pulled way back in the most frothy markets. Something to keep our eye on here. Immediate sales should dry up over the fall and holidays. Will be fascinating to see what next spring brings. Will buyers still have to be aggressive because we’ll still have so few homes on the market? What a surprising twist that would be.

If you have buyers and sellers looking for guidance right now, make sure you get them the data so they can see for themselves what is happening in your local market. Even in those most hard hit markets, we maybe can see the slide slowing. Your buyers and seller need to know that. Go to AltosResearch.com and sign up so you can get the data in your hands and in your clients hands today. There’s a link to Altos in the description below.

No video next week August 29. Last vacation days of the summer for me. We’ll be back in action for Labor Day week. Our next webinar is Tuesday September 20th. Space fills up, so register today. That’s all the data we have time for today. More next week.