Is This the Beginning of the End of the Housing Recession?

The big question on everyone’s mind is: when will home sales turn around? Are we on the cusp of a double-dip housing recession? Or are there signals that 2024 might see a recovery in the housing market?

When we talk about “housing recession” I make a distinction between transaction volume - the number of home sales, which the industry cares about - and home prices - the value of the homes, which consumers care about. These are not driven by the same factors. This year has been a housing recession, and we’re on pace for fewer than 4 million home sales in 2023. But at the same time, we’ve had a soft landing for home prices. Home prices eased back off the very peak of the pandemic frenzy, but even though we have very few home sales, home prices are not falling. In fact home prices are up a fraction this year, and the early data for 2024 says the same pattern is imminent.

So if home prices are up, but home sales volumes are super low, will home sales turn around in 2024, or does unaffordability mean we are in for continued decline in the number of people buying homes?

Let’s look at the US housing market data for the week of November 6th 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 6th. Please refer to the video below for all the charts I mention in this transcript!

Inventory

Available inventory grew yet again this week, inching up 0.7% to 567,000 single family homes unsold on the market. That’s just a fraction below last year at this time. Last year inventory peaked during the last week of October. This year we have at least one week in November so far. I suspect that this is it though. Thanksgiving is right around the corner. The dark red line here is this year’s curve. It’s just below last year’s and about to start declining for the end of the year. I expect inventory to be flat or start moving lower by the November 13 market report next week.

The key to remember about available inventory as we roll into the end of the year:  If rates go up from here, inventory will build next year. If rates go down, inventory will shrink. If you are a potential home buyer on the sidelines waiting for affordability, hoping for lower rates, maybe they get lucky and that happens. But also if rates drop, buyer competition will increase and selection of homes to buy will fall. 

So back to our question about home sales volume, lower rates will increase the number of deals that get done, even as the market remains constrained by too few sellers. More sales happening, fewer homes on the market. 

New Listings & Immediate Sales

This week there were just 62,000 new listings, of which 9,000 got offers and went into contract immediately. While there’s no rush of new sellers each week of course, it’s November, it is notable that new listings volume now is basically the same quantity each week as it was last year.  Same levels as last year. We’ve had fewer sellers all year long. Because last year at this time the stock of sellers was shrinking so quickly, we’re now on pace to start 2024 with roughly the same seller volume as we started this year. This says to me that the mortgage rate shock is moving past and next quarter will no longer see shrinking sales volumes. 

In this chart each bar is the total number of new listings each week. The taller the bar, the more sellers. The light portion of the bar are those new listings that went into contract immediately. I included the horizontal annotation to show this week’s level compared over time and I marked last year.  Last year the volume was plummeting. See how steep the decline was each week. This year the seasonal decline is much less dramatic. See how shallow the slope is at the right end of the chart. If we assume this slope stays the same, it means that we’ll have a few more sellers to start the year. Last year was coming out of such a deep hole. It’ll be a little more supply to increase the number of sales. This would indicate that next year’s sales volumes should tick up a little bit.

I should point out that these signals are very early and we have months of headlines from NAR pending sales and the MBA’s purchase index that will still show decline. It’s these moments in history that are the most fun. When you get to start reading the bullish transitions in the data, while the headlines are still reporting armageddon. It’s also scary to take that kind of position. I’m cautious. I don’t like to be overly rosy in my analysis. Just keep your eyes on this supply chart to see if the latest trends continue and maybe in January we can be more confidently bullish. Or maybe mortgage rates spike back over 8% and the analysis reverses. But as of right now, slightly more supply means slightly more transactions for 2024.

Sales Rate

That’s the supply side, let’s look at the demand side. While you can’t rely on sales volume to be definitive about housing demand - sales are capped by supply - the signs here are maybe indicative of a bottom too. 

I think we’re going to have slightly more sales in 2024 than 2023, I say this because we can see the sales rate is finally not shrinking any more. We saw 51,000 new contracts pending this week for single family homes across the country. It’s November so there aren’t a lot of sales of course, but for several weeks in a row, the sales rate each week has been roughly the same as last year. We started 2023 with 30% fewer sales each week. The dark line here shows the number of home purchase contracts started each week, the bright red line is last year. See how all year long the dark line was fewer sales than the light line. Then suddenly at the far right end of the chart they’ve converged. 

I thought back in July that the sales rate might eclipse last year. See in the middle of the chart here, but then mortgage rates spiked and sales dipped again. Now finally sales are running each week, not fewer than last year. This indicates the end of the declining pattern of home sales. But also this tells us that any recovery we might see here is very fragile. We’ve had a few days of falling mortgage rates. But rates could very easily bump up to the 8s or higher with a few macro variables. Then the home sales transaction rates would drop again. 

Price Reductions

When analyzing home buyer demand, I often prefer price reductions as a more useful metric than the sales rate. Price reductions are just about to top out for the year. Currently 39.1% of the homes on the market have had price reductions from their original list price. That’s up just 20 basis points from last week. It’s pretty high. A lot of sellers this fall got trapped by the surge of mortgage rates over 8%. But price reductions are still notably fewer than last year at this time. Therefore I don’t think the signs are strong enough to indicate home prices falling in 2024. You can see the curve from this year is just about to top out, probably next week, and then start declining for the holidays. Price reductions as a percentage of homes on the market decline over the holidays because a lot of those that are sitting without offers get withdrawn now and relisted in the spring. 

The shaded gray area on this chart is the normal zone. At the beginning of the year at the left side of the chart, the dark red line, price reductions started very high and we could see them declining quickly as a clear indication of renewed levels of home buyer demand this spring. We could see very early in the year that would create a floor on home price declines after last fall.  That was a hard message for people to hear, if they had been expecting big home price declines in 2023. But that’s what the data told us. 

The thing to be watching for now with price cuts is how homebuyers react to changes in mortgage rates from here. Buyers are more sensitive to changes in rates than to the absolute level. Rates staying in the 7s is actually slightly bullish for the sales transaction volume in early 2024. If rates fall that’s obviously more bullish.  We can see the reactions to rate movements very quickly in the price reductions data. Both this year and last had an inflection point in September with late season big spikes in mortgage rates. Price reductions are correlated almost to the day that rates jump. Fewer offers get made and more sellers cut prices. 

Home Prices

At the start of the video I mentioned that while sales volumes are low this year, home prices are up. The median price of single family homes in the US this week is $430,000. Home prices continue to be up by a couple percent over 2022 and look to roll into 2024 at that level. 

The median price of the newly listed homes is just a hair under $386,000 now. This measure is also a couple percent higher than 2022. You can see the two big dips coming for each of the holiday weeks in November and December. The price of the new listings will be fun to watch the absolute low point over New Years. Where is it relative to last year? And then how quickly does it pop in January. Those first few weeks of pricing in January give us a lot of signal for home prices for the whole year of 2024. Stay tuned for that in the coming weeks. 

There is so much signal in the active market and these market conditions now change so quickly in the post-pandemic world. It’s really early, but you can see some signs that home sales volume is no longer shrinking and maybe poised to grow in 2024. These are the most fun and scary moments to be paying attention to the real time data. It’s fun to make the call but it’s scary to go out on a limb and maybe be wrong. 

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