Mortgage rates fell two weeks ago, then climbed steadily again last week. Is it enough to motivate any new buyer activity or are we looking at 2025 before home sales finally recover?
From a total inventory perspective we haven’t seen any pick up in demand in the past couple weeks as mortgage rates fell under 7%. To be honest, this is a bit surprising to me. I expected to be able to measure some pickup in demand with cheaper money.
Two factors are at play here:
1) It could be that rates simply haven’t fallen far enough or stayed there long enough. I was expecting that under 6.75 to 6.5 would be a threshold where we’d see buyers start moving. We hit 6.5 ten days ago. But rates didn’t stay there long and in fact climbed all last week. If I’m a home buyer I’d have to be really attuned to rates and my purchase options to jump that quickly. Most buyers are frankly not that aware. Rising rates can stop me quickly, but it takes longer with lower rates to motivate me to action.
2) The other reason could be seasonal timing. For falling rates to motivate buyers to take action, we’d need buyers actively shopping. It could be that we’re witnessing home buyers totally checked out for 2024, waiting to see where rates are, what the economy is doing, and who is president next spring. If I’m a home buyer, I don’t see a lot of market trends that make me want to jump now.
Whatever the reasons, we are not yet measuring any increase in demand for this dismal 2024 housing market.
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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 12, 2024. Please refer to the video below for all the charts I mention in this transcript!
There are now 693,000 single family homes on the market. That’s a 1.3% increase for the week, which was a little bigger increase than the week by week seasonal model estimated. There are almost 41% more homes on the market now than last year at this time. It was near the end of August last year when rising mortgage rates really slowed home buyers and inventory rose unseasonably fast. Last year inventory was rising 1-2% per week through the end of October.
We have not hit the peak of inventory for this year yet. With a 1.3% weekly gain in unsold homes on the market the slope hasn’t yet plateaued. From this supply perspective we haven’t seen any pick up in demand in the past couple weeks with mortgage rates under 7%. As I mentioned, this is a bit surprising to me. I expected some pickup in demand with cheaper money. In fact, since we haven’t seen even a plateau in inventory yet, that implies that home buyers aren’t even paying attention to mortgage rate changes. Houses and payments are still very expensive and it’s late in the season.
So the next signal we’re looking for is whether the weekly inventory change levels off. from 1.3% weekly gain, to under 1%, to flat. I’m looking for that over the next month, especially if mortgage rates don’t rise. If unsold inventory keeps rising despite dropping inventory, that will cause me to go back to the forecast models and recalibrate. So keep your eyes on inventory for the next 6 weeks or so.
Speaking of recalibrating, we did a big database code upgrade over the last week and some of the calcs are still being processed, so we’re not publishing the new listings data this week. Everything will be back to normal next week on that front. We’ll focus on the sales for this video.
There are 367,000 single family homes in contract currently with another 77,000 condos in contract. That’s 3% fewer pendings now than a week ago. And basically unchanged from last year at this time. When we look at the sales rates, it’s totally normal for the pace of sales to decline in the second half of the year after peaking in June.
In the first half of the year I kept expecting that we’d get a little growth over 2023, but that hasn’t materialized at all. The pace of sales is aiming for just over 4,000,000 for the year. That hasn’t grown at all and is maybe even slipping slightly from the pace earlier in the year. In this chart you can see how the dark line for 2024 is basically tracking the red line from last year. Maybe finally in 2025 we’ll see some growth in home sales. But it’s not in the data yet.
So sales are down and show no signs of improvement in 2024. Inventory is climbing and hasn’t peaked for the year yet. If supply is up and demand is down doesn’t that imply that prices would be falling?
You’d think so, but they’re not, at least home prices on average across the country are not falling. In fact a lot of markets do have lower home prices now than a year ago. Many places home prices are climbing. Nationally home prices are about 3% higher than a year ago. Looking at the price of the new listings cohort each week helps us see what’s going on.
At the top of the chart are the last three years. You can see how home prices have barely moved since 2022.
In the middle of the chart you can see how prices climbed during the pandemic. From $300,000 median price, to $350,000 to $400,000. At the bottom of the chart, in 2018-2019 we had rising mortgage rates, we had Trump trade wars that were really slowing the economy. Home price growth was stalled in 2019 into 2020. Then of course in Q1 2020 all the macro factors changed.
I like using this view of the price of the newly listed cohort each week as a leading indicator of future sales prices. A house gets listed now, it’s on the market for a month, takes an offer, goes into contract, and the sale closes another month in the future. When sellers have buyers they price the listing at a slight premium. So we can see the rapidly responsive price changes.
Currently the median price of the new listings this week was $410,000. That’s down from last week and is just 2.8% higher than last year at this time. Sellers have what’s known as “downside stickiness” to their asking prices. Home sellers don’t really want to list less than the neighbor so even in a light-demand world we don’t see dramatic home price declines.
And this helps us forecast what might happen over the next few years to home prices. We’ve had two full years with basically no home price appreciation, but no crash in prices even though we had a crash in total transaction volume. I could imagine a few more years with little or no change in home prices, while incomes improve and maybe in the future rates fall again so affordability finally recovers.
When we look at the homes taking offers and going into contract this week we can see the median price nationally is $389,900. That’s down almost 1% for the week and is right around 4% greater than a year ago. So the new listings are showing 3% price gains, the new sales contracts are showing about 4% price gains. The closed sales for the year will be somewhere in this range.
Sales prices inch down with the season in the second half of the year. You can see this year’s dark line is still just a little bit elevated over last year when we look at the cohort of homes taking offers and going into contract each week.
People ask me how the Altos measures of home prices are different from other measures like the Case Shiller Index. One difference is that Altos measures the housing market. Case Shiller is what’s known as a repeat sales index where they try to look at the price of the same house over time. How much has the price of a given house changed? In the Altos data it’s if I walk into the market today, this is what I can buy. And, this is the price people are paying for homes. Altos is focused on “how much do homes cost?” Where a repeat sales index is focused on “how much has the value of a house changed over time?” They’re tightly related of course. As demand increases the market price climbs and the repeat sales value climbs. But if you’re buying or selling a home, I’d suggest that the number you care about is the market number. “What’s actually available today? How is the market changing? Is it affordable to me now?”
Even as home sales volumes haven’t increased, as I mentioned we’re on pace for 4 million sales in 2024, buyers know where the price is. That $390,000 or so is the buy box today for the American consumer. It’s up just a tiny fraction from a year ago and shows no signs of increasing dramatically this year. It could fall quickly if mortgage rates jump again or if for example the economy tanks hard.
We’re approaching the end of the season. The homes on the market are priced at reasonably stable levels. The percent of homes on the market with price reductions edged up this week, but the pace of price cuts is not rising particularly quickly any more.
About 39.7% of the homes on the market have taken a price cut from the original list price. That’s up about 30 basis point from last week. You can see in the next few weeks how the slope of this year’s price cuts, the dark line, will take us below the dramatically slowing market of 2022.
The price cuts data is consistent with the other supply and demand and pricing indicators we’ve shared today. None of it leads us to any price strength in the market. But nothing is collapsing either. As I mentioned at the top of this video. I can image multiple years at this pace of price changes.
I use 35% as a rule of thumb for “normal” here. In all markets some sellers overprice and take a price cut. It’s usually about a third of the market, though that varies by location. Phoenix for example is normally around 40%, where the perpetually tight inventory in the Bay Area means only about 20-25% normally take a price cut. Nationally, more sellers than normal have had to cut their asking prices. That should be no surprise. What we’re watching for now is if buyers still remain reticent for the rest of the year, does that “downside stickiness” for seller pricing start to become unsticky? That is, do sellers finally get frustrated with a lack of offers and take the discount to move a property? We haven’t seen any evidence of that yet. And since most homeowners have a ton of equity and amazingly good financing, you can imagine that those sellers have no need to hurry.
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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