While inventory of unsold homes on the market in each of the two last years headed higher during September and October due to mortgage rate spikes, we’re seeing a more normal seasonal pattern now with inventory beginning to decline. We’re also seeing more home sellers withdrawing their listings to try again next year. In fact, for every two sales now, there is another listing withdrawn from the market.
In this week’s update, I look at how these dynamics will impact home sales, prices, and buyer opportunities for the rest of the year and into the first quarter.
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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 September 9, 2024. Please refer to the video below for all the charts I mention in this transcript!
We’ve now had two weeks of just a little decline in the unsold inventory count. Inventory is not climbing, it’s basically flat. My gut says that inventory will rebound up a bit next week. In fact the inventory forecast model we use - which is based on recent years’ market behavior, expects an increase of just under 1% of unsold homes by next week. That would be totally normal for the mid-September week to have a little inventory increase. I think that’s what we’ll see. However, in this falling interest rate environment, we could see a continued decline in inventory. That’ll be fun to watch. I still expect inventory to rise in the coming week. By the way, I’ll be traveling next week so I won’t do this video. To confirm whether I’m right or wrong on that call, you can visit the HousingWire market tracker that Logan Mohtashami publishes each weekend. Find that at HousingWire.com
So there are just under 704,000 single family homes unsold on the market across the US. That’s basically unchanged now for two weeks. Down like one tenth of a percent from last week. There are 38% more homes now than a year ago. Inventory has been climbing versus 2023 all year long. But that climb is now reversing. I mentioned that I expect inventory to increase by probably 1% this coming week - that would be totally normal. But last year the market was deteriorating and 2% more homes piled up during the same week of September. Last year inventory climbed 1.5-2% through October and kept climbing all the way to the end of November. We’re in a different market now. Unless of course the Fed surprises us next week and mortgage rates jump again. If that were to happen we could absolutely repeat last year's slowdown, but that’s not happening at this moment.
In the long term inventory chart here, I’ve highlighted each of the last two years. You can see how much inventory had to grow still as rising mortgage rates really deterred buyers at the time. But also look back here at 2019, and see the old normal plateau across late summer into the autumn.
There are two reasons that inventory is probably around the peak for the year. We can see that the new listings rate continues to be restricted. There are just not that many people who are anxious to sell their homes in this environment.
The other reason is the withdrawals. For every two homes going into contract each week, there’s a third listing withdrawn for lack of an offer. Sellers may try the market, not find any takers and then decide not to sell. Since most homeowners have very cheap financing, it’s very easy to not sell. But the longer this slowdown goes, the more would-be sellers build up, and this is why we should anticipate inventory to keep gradually climbing back to the old normal levels in the next year or two. If mortgage rates fall substantially however, inventory will dry right back up.
There were 62,000 new single family listings unsold this week. With another 12,000 new listings that are already in contract. 74,000 total new listings is a bit more than a year ago but still significantly fewer sellers each week than in the pre-pandemic era. In the chart here, each line is a year, the dark line is this year you can see it bumping along the bottom. Slightly more sellers than last year, but still fewer than any of the gray lines from previous years. There’s just nothing in the data that indicates this would change abruptly. I see a gradual change coming. The rest of the year, you can see the seasonal decline in sellers through the fourth quarter to reset in January.
I mentioned that for each of the new contracts pending there’s a third home withdrawn from the market. There were 62,000 new contracts started for single family homes this week, and another 30,000 or so withdrawals. Both of these phenomena work at the margins to keep a lid on inventory.
We’re on pace still to do about 4 million existing home sales in 2024. In this chart each line is a year, tracking the contracts that get started in a given week - these are newly pending sales. The most notable feature of the new pendings data is how abrupt the slowdown was in July and September of 2022. That rate spike in September 2022 was a surprise and buyers backed off very quickly.
Even with rates falling now, I’ve mentioned that it’s very difficult to see any uptick in sales. See the dark line for this year is still bouncing along right where it’s been for two years. What I’m watching for is the next 3-4 weeks of pending sales volume. If we get a slower seasonal decline than the previous lines here, we could see the year finally show an uptick in relative levels of sales. See that sharp drop in the light red line in September 2022. Does the 2024 line just slowly stay above that? I don’t know. I’ve been looking for sales expansion all year and it really hasn’t come, but the next window for it is by the end of September. So I’ll keep the watch there.
By the way if you follow the MBA’s purchase mortgage applications index, it had its low point last year at the end of September too. It’ll be really interesting to see if both our measure and theirs show an annual increase by next month. Again, this wouldn’t be showing really a demand increase, it would maybe capture relative gains. Less worse. And maybe the signal of finally an inflection point. Keep a watch for that. You can read Logan’s commentary on mortgage applications in the HousingWire Market Tracker each week on HousingWire.com.
Even as the supply of homes on the market is no longer growing, the prices that people are paying for homes is easing down. Home prices are not falling, but the annual increase seems to be receding just a bit. Home prices peak each year in June and decline for the second half of the year. So the slope of the curve in the back half of the year matters for measuring annual price gains.
The median price of the newly pending home sales is $380,000 this week. That’s a notch down from last week and is barely above the same week a year ago. Essentially unchanged from last year. This is the price point people are paying for homes, the new contracts started each week. Most of the year this measure of home prices has been averaging about 3-5% gains over 2023. You can see the dark line here elevated over the red line.
This week with the dip in sales price, it came in just a fraction above last year. Essentially a zero percent increase. There’s some bounce in this data set week to week so next week it could be back up in the 3-5% range again. I think the key here is that we can see downward pressure, not upward pressure on home prices. That makes sense of course. Even as mortgage rates are lower, it’s the back half of the year, and a lot of would-be buyers are waiting until next year.
Most measures of home sales prices are still reporting about 3-5% home price gains. That headline home sales data is lagging though. What we’re watching here is in the next few weeks do we stay closer to 0% home price gains or are we staying in the 3-5% gain range?
Price reductions seem to have peaked, in part due to increasing levels of withdrawals from the market. In the fourth quarter each year, homes that stayed on the market too long and didn’t see offers either reduce their asking price, or withdraw the listing, or both: reduce price, still no offers, then withdraw for the winter. Maybe relist next spring if the market is better. This is a normal pattern for every year.
When a home that has been on the market, with price cuts, when that home is withdrawn, the percentage here declines. So every year around the holidays, you see a steep decline in the percentage.
You can read this withdrawal phenomenon from two angles: On the one hand it’s a bearish market when there aren’t buyers so sellers are discouraged.
On the other hand, these are homeowners who have very cheap financing. Most of them don’t have to sell. If my mortgage payment is $1400 per month, but waiting 6 months might get me $20,000 more on my sales price, I’ll just not sell the house now. I can afford to wait until conditions improve.
Regardless of your orientation on the topic, fewer sellers means less selection for active buyers, it means there’s a certain floor on prices. Sellers will walk before lowering prices further. With price reductions at a local maximum, that tells us that there isn’t continued downward pressure on home prices. That’s what I think we’re seeing here.
I expect some 4th quarter climb in price reductions before the holidays, but nothing like the last two years. In those times, spiking mortgage rates surprised the sellers, slowed the market, and caused those price cuts to accelerate. We have the opposite conditions now.
The big trends from earlier in the year are shifting now. 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. Maybe mortgage rates have finally turned the corner? For buyers and sellers, these conditions can change fast and it can be very impactful for smart decision making. They need to hear the data from you so they know how to act. You should join us at Altos.
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