More Price Cuts As Inventory Continues To Grow

Nationally, the housing market indicators have been slow for several months now. There have been a few markets though that have defied the national trends where inventory has stayed tighter and demand keeps rolling in. Available inventory of unsold homes in the US is 40% more now than last year, but some markets are just now starting to lift beyond the pandemic lows.

It was the second half of the year last year when rates started rising. After June of 2023, mortgage rates climbed from the 6s into the 7s on the way to 8% by October. So mortgage rates are higher than they were six months ago, higher than last year, higher than two years ago. Consumers can’t help but feel it. We continue to see slow sales as a result... and more price reductions.

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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 July 8, 2024. Please refer to the video below for all the charts I mention in this transcript!

Inventory

Available inventory of unsold single family homes rose by just over 1% this week to 653,000. There are now 40% more homes on the market across the country than a year ago. 

In this view of inventory trends for the last decade you can see where we are relative to where inventory of unsold homes used to be. You can also see at the far right end of the chart the steep climb. Inventory is up 1% for the week and it has several months to climb still. You can also see that in the pre-pandemic years it would be common for inventory to peak at the end of July. I’ve marked 2019 on the chart here. Over the past decade each year with low interest rates would lead to fewer and fewer homes for sale. In the past two years we’ve had rising interest rates and rising inventory. And it sure doesn’t seem like we’ve found any peak in rates yet, so we have to assume that inventory will keep climbing. 

Inventory is rising everywhere in the country. Every state has more homes on the market now than a year ago. Even in places like the northeast, which had shown the least inventory growth, those states are now accelerating. Massachusetts has 35% more homes on the market now than a year ago. Massachusetts and New York for example are still just coming off the record tight markets of the pandemic, but that trend is obviously changing, finally. 

New Listings

When we look at the new supply hitting the market each week, we see the same trend we’ve had for a few months. There are more sellers than a year ago, but still not a lot of sellers. 71,000 new listings for single family homes this week. There were another 16,000 new listings that are already in contract as immediate sales to that’s 87,000 total sellers this week. That’s 12% more sellers than a year ago, which is right in line with the trend for most of the year. We have a few more sellers each week, and just about the same number of buyers. And therefore inventory is growing. 

In this chart, each line is a year. It’s really easy to compare this year’s low rate of sellers to last year’s record few sellers. The dark line is this year, the red line is last year. Last year the fact that sellers were staying on the sidelines kept supply low and ultimately pushed home prices higher for the year. This year has less of that pressure for sure.

This mid-year point has a lot of significance in the new listings data. Two years ago after rates first started their ascent, sellers were rushing to get to market. In the first week of July 2022 there were 90,000 new listings unsold and another 24,000 immediate sales. 114,000 sellers vs. 87,000 now. You can see that in the pink line here. At the time it looked like we could see a flood of sellers, inventory was rising at the time 3-5% per week. And it looked like it could continue. But those sellers promptly stopped in July 2022. See how the pink line drops in the second half of the year. That was a clear signal that the market wasn’t going to get too imbalanced. 

So what do we see now? We see that sellers are still restricted. I don’t see a reason for that trend to change in the second half of this year. That means inventory will grow - we have 12% more sellers than last year, but it won’t get too far ahead of demand and create a crash scenario. 

Since the holiday weekend ended just yesterday we’ll see a drop in the new listings in next Monday’s data. And then a gradual seasonal decline for the rest of the year. 

Pending Sales

There were 68,000 new contracts started for single family home sales this week. That’s a couple percent more than last week. It’s actually 8% fewer than the same week a year ago. I hate reporting fewer sales than a year ago, but that’s where we are. The sales pace hasn’t really budged in eight weeks in what would normally be the peak of the home buying season. 

In fact the sales trend has slowed in the last couple months. This week recorded 8% fewer contracts than a year ago. That bounces a bit but the trend has been fewer sales since early May. 

In July and August of 2022 in that moment when the supply valve shut off, there was still some buyer momentum. In this chart of the weekly pending home sales you can see the light red line stayed a bit elevated in the 3rd quarter before really diving in September 2022 when mortgage rates jumped again. Now we’re two years past that and mortgage rates are still in the 7s. There is just no real opportunity to encourage buyers. 

There are 381,000 single family homes in contract across the country now. After end of month closings, there are 4% fewer homes in contract than last week.  Last year at this time there were pretty much exactly the same number of homes in contract. Earlier in the year I talked about some sales volume growth that we could see in the pendings data, but that growth is gone now. It won’t pick up until we see mortgage rates decline. If we finally see rates in mid-6s one of the places you’ll see the change will be in a pickup of pending sales. 

Home Prices

The median price of single family homes in the US is just under $455,000. That peaked a few weeks ago and is inching down each week now for the second half of the year. $455,000 is the median price of all the homes on the market around the country. And it is unchanged from a year ago. 0% home price appreciation over the last year. It’s basically unchanged for two full years.

The price of the newly listed cohort is $425,000 this week. These are the 71,000 homes that hit the market this week. That’s actually 5% above the same week a year ago. The price of the new listings is a leading indicator for future sales prices and has still been running 0-5% increases over 2023. Not showing any strength, but also notably, not falling either. 

For the homes getting offers and going into contract - these are the new pendings each week - those are priced at $395,000. The price of the new pending contracts is what I have illustrated here. Those contracts are still 4% more expensive than a year ago. So by this measure home prices are up 4% over last year. In this chart we have three years of the prices for this newly pending cohort. We should expect that these prices will begin to ease down for the end of year seasonality starting next week. On this chart I’ve highlighted the two points in 2022 when spiking mortgage rates spooked home buyers enough to ratchet home prices down quickly. We don’t have that now. But if mortgage rates happen to jump we will. 

When we seek to understand whether home prices will fall in the future, it helps to think about the phenomenon they call “downside stickiness” in home prices. It’s very easy for sellers to list their house for sale at a little premium, but the next discount is more difficult to swallow. That downside stickiness is why I think we’re seeing obviously bigger supply with slower demand and home prices are flattening, but they are not falling. We don’t have any indicators in the data anywhere that point to negative annual home price changes in 2024. We see flat. 

Price Reductions

And here’s what I mean - when we look to the future of home prices for sales that haven’t happened yet, we see a continuation of this trend we’ve been talking about for weeks. The percent of listings that have cut their asking price from the original list price is now up to 38% of the market. That’s a fairly high number. It’s 40 basis points up from last week. That’s indicative of demand weakness. If I’m a seller and I don’t see an offer in a month or so, I will opt to cut my price. 

38% is 40 basis points more than a week ago. It’s significantly more sellers with price cuts than any July of the last decade. I had a client ask today if we should be more alarmed by this. My answer is that this is notable. It’s one of the indicators that shows us that home prices will be flat, but compared to the slope from 2022, it shows that the market isn’t grinding to a halt. The light red line here is 2022 when the market was shifting so rapidly. 

I suspect that some of the country, places like Boston or Southern California, which had surprisingly resilient years so far in the real estate market, I suspect that as inventory builds there, there will be some sellers who are surprised at the change. Those sellers will be over priced, they’ll not get offers, and we’ll see price reductions rise in the second half of the year. We’re at the start of the shift in those markets which have remained hotter in 2024. Keep your eyes on that - especially if you’re in a market like New England where you’ve been hearing about how Florida or Texas inventory is way up, but you’re watching homes in your own neighborhood get bidding wars just like the pandemic. It seems to me that those markets are finally shifting now.

And that’s why we do this data work each week. Homebuyers are obviously sensitive to the cost of money. And mortgage rates stayed higher for longer than anyone anticipated this year. They haven’t come down yet. What if they do? If you aren’t watching the data each week, you’re probably behind the curve. You have buyers and sellers who have no idea how this market is changing right now. They need to hear the data from you. You should join us at Altos.

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