Is Inventory Growth Finally Slowing?

Unsold inventory has been on the rise all year, but there are some signs that inventory growth is slowing as we approach the end of summer with newly-lower mortgage rates.

In the years before the pandemic, it would be totally normal for inventory to peak at the end of July or in August. But in the last two years, as the market slowed, inventory climbed all the way to November. I think we probably have another month or more of inventory growth, but that growth sure seems to be slowing. 

Slower growth of unsold homes on the market is a result of still few sellers on the supply side and stability on the demand side. We’ve been in an extended period of weak or declining home buyer demand, so that unsold supply of homes continues to build. If demand stabilizes, we may be at the peak of this trend for the season. 

We’re keeping on the lookout for these subtle shifts in the market because that has implications for home price appreciation and for home sales volumes for the year. There’s nothing in the data that says 2024 is going to accelerate, so the most optimistic scenario we’re watching for is stability and maybe some sales recovery in 2025. 

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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 August 19, 2024. Please refer to the video below for all the charts I mention in this transcript!

Inventory

There are now 698,000 single family homes unsold on the market. That’s up less than 1% for the week. That’s the least growth in the inventory trend in months. This makes sense as it is late in the season. In the years before the pandemic it would be very common for inventory to hit the year’s peak in August or even July. But since 2020, we have lost some of that seasonality in market behavior. 

I’m very interested in the timing of this year’s seasonal peak of inventory. We’re in a slow market so it’s not a surprise that the supply of unsold homes is still growing. In each of the last two years, that unsold set didn’t peak until November because mortgage rates were rising, causing buyers to be discouraged, and purchase volume to slow down. In the yearly inventory trend chart here, you can see the inventory surge that happened in the two red lines for 2022 and 2023 in September of those years with those mortgage rates surges.

As maybe we’re in the opposite scenario this year with mortgage rates falling in the second half of the year, maybe we’ll hit the inventory plateau earlier. The first step there is when the growth rate slows down. First the slope of the chart has to flatten. The growth rate of unsold homes on the market has slowed from close to 2% weekly, down to roughly 1% weekly. This week was under 1%. Available inventory of unsold single family homes grew by about 5,000 homes, or 0.8%.  I read that as stability, including a few consumers responding to slightly cheaper mortgage payments. And not a lot of sellers who feel the need to unload.

New Listings

On the new listings side, we’ve covered the slow rate of sellers now for two full years. This week was no different with 67,000 new listings of single family homes. This is right where we expected it for the week. It’s a few percent more sellers each week than a year ago. In addition to the 67,000 unsold new listings, there were 14,000 new listings which went immediately into contract.  So that’s 8.5% more sellers in total this year than the same week last year. 8.5% more sellers will cause inventory to grow. 

When you look at our New Listings chart you can see this year’s dark line is aligned with 2022, and a little elevated over 2023’s record low levels. But also, there’s no sign of any big surge in sellers. The most dire predictions about where the housing market is heading would require a surge of sellers. Even in the states like Florida and Texas which lead the inventory growth have probably plateaued. Total unsold inventory in Florida actually ticked down this week. New listings in Florida are down and indeed fewer new sellers this week than the same week in either of the last two years. Texas hasn’t rolled over yet, but we’re keeping an eye on it. Texas inventory grew by 1.5% or a little faster than the national average for the week. 

So not all signs are showing the plateau in unsold homes. Texas drives a lot of the country, so we’ll see if my speculation here comes through.

Home Sales

There are 366,000 single family homes in contract. That’s a fraction fewer than a week ago. It’s basically unchanged from last year. There were 66,00) single family sales newly pending this week, plus another 13,000 condos. 79,000 total sales started in mid August is still very low, it’s aiming us to that 4 million annual sales mark and hasn’t climbed notably. 

I’ve illustrated the total count of single family homes in contract here. This year’s curve is the dark line. It’ll dip again over the coming Labor Day holiday in a few weeks. It’s taking about 36 days in contract on average for home sales to complete this summer. So these sales will mostly complete in August and September. 

As mortgage rates fall, we’re still looking to see if there is any notable uptick in buyer demand. Not really anything yet. Payments are still very expensive of course, but they’re basically at their lowest point of the year. Is there a threshold that motivates buyers? I previously assumed that being at 6.5% would be a visible threshold for increased home buyer demand. But I haven’t seen any confirmation that I’m right in the last few weeks.

If we see any uptick in buyer demand, we’re looking at September or even October before the sales needle moves. It’s really the 4th quarter if we’re going to see the sales data improve on a relative basis - relative to the last two years. In this data, you’ll see the dark line finally lift above the trend from last year. In both of the last two years, the two lighter red lines here, mortgage rates rose in the second half of the year. In ’22 and ’23 those sales took big hits late in the year. So maybe, if we’re lucky, we see the opposite trend finally taking shape this year. With a few more sales building up to have a better 4th quarter. If we’re lucky.

If we’re not lucky, then rates haven’t fallen far enough or buyers are just going to wait until next year before taking any action. Keep your eyes on the weekly pending sales data.

Home Prices

The median price of single family homes in the US is $449,900. That’s unchanged from the last few weeks. If you walk into the housing market today to buy or sell a house, this is what the market looks like. It’s the same median price as last year and the same as 2022 in August. Prices nationally are unchanged for two years. 

The price of the new listings this week is $400,000. That’s roughly the same as last week and last year also. 

I’ve used the long term illustrations of home prices today so you can see how the old normal steady price increases over the last bunch of years has plateaued. Home prices are basically unchanged over the last two years. In a world where mortgage rates stay relatively elevated, or if the economy finally slows, I anticipate we could have two more years with this same pattern. In this chart see the annual summer home price peaks to understand how the historical pattern works.

Also note how clearly this chart illustrates the new listings prices and the seasonality in that number. That’s the bright red line here. Home prices are at their lowest over the new years holiday. Then in the spring the best inventory comes to market and prices are at a premium. That peaks in May. Then in the second half of the year if you’re listing for sale, you do so at a little discount to make sure the house moves. At the right end of the chart you can see the season’s discounts are now in full swing, coming down like they have in each of the past two years. In 2021 in the middle of the chart here, the late year demand during the pandemic boom kept prices buoyed. You could see in August how the year’s home price appreciation was going to be strong for the full year 2021. 

So the price of the new listings is now $400,000. That’s just fractionally above last year at this time. These are leading indicators for future sales prices. And it tells us that the sales price measure you see in the headlines will finish the year flat to maybe just a bit positive. The homes listed now are priced basically the same as they were a year ago. So the sales prices will also be around the same levels, when those sales close later in the year. 

It is notable that the price of the homes in contract is still 3-5% above last year.  At $399,900 this is unchanged for several weeks. Last year the pending home sales prices were hovering around $380,000. The pending sales prices are the best proxy for the sales that are about to happen. Right now, those prices are a little above last year. And that’s why when you see the headline number about home sales prices they’re still reading a little higher than 2023. I don’t imagine the pending sales prices to improve from here, I feel like there’s only compression in the data through the end of the year.

Price Reductions

Price cuts on the homes listed for sale has maybe plateaued for a few weeks here at 39.5% of the listings that have taken a price cut from the original list price. Though I do expect price cuts to continue to grow slowly as the summer turns into fall. As it gets later in the year, any seller who hasn’t gotten the offer they wanted has two options: either you cut your price, or you withdraw the listing. Either way the percentage of the active market with price cuts increases. So this should continue to increase slowly for a couple more months. 

Withdrawals of active listings are definitely climbing. This happens every year, in every market of course. But it’s happening a bit more right now. On the one hand withdrawals are a bearish sign. There’s no buyers, sellers are so discouraged they’re walking away. On the other hand, this illustrates that sellers can walk away. It signals that homeowners are not interested in a weak market and are in a good position to wait. That implies continued tight inventory - or a bit of a cap on inventory growth, and it implies there is less downward pressure on home prices even in a time of weak demand. 

If mortgage rates continue to fall and a few more buyers are motivated, then we’ll see this price reductions data top out in the next month or so before declining for the fall. If we’re unlucky and rates bounce back up. For example if the Fed doesn’t cut as expected in September, then the mortgage markets will react sharply. Mortgage rates could jump in September then we’d see a big jump in this price reductions line the same way it happened in both September 2023 and 2022. That could happen again. Keep watch here.

And that’s why we do this data work each week. If sellers finally change their expectations, we’ll see it in the data quickly. Mortgage rates stayed higher for longer than anyone anticipated this year. Maybe we’ve finally turned the corner? If we’re lucky? For buyers and sellers, these conditions can change fast. They need to hear the data from you so they know how to respond. You should join us at Altos. 

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