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Mortgage rates will make or break the spring real estate market

By Mike Simonsen on December 5, 2022

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Mike Simonsen

A true data geek, Mike founded Altos Research in 2006 to bring data and insight on the U.S. housing market to those who need it most. The company now serves the largest Wall Street investment firms, banks, and tens of thousands of real estate professionals around the country.

Inventory of homes for sale in the US is declining each week now. It’s the end of year so that’s to be expected of course. But we probably only have 6 weeks more of falling inventory before the spring market kicks in and new sellers start trying the market. It’s going to be wild where next year ends up. If you watched our November webinar, we shared the first look at how inventory of single family homes in the US could indeed get back to normal levels by the end of next year. That scenario was really hard to imagine even as late as August this summer. But if mortgage rates stay over 6 or 7% that’s how inventory will build all year. 

Every week Altos Research tracks every home for sale in the country. We analyze all the pricing, supply and demand, and all the changes in that data and we make it available to you before you see it in the traditional channels. If you aren’t using Altos market reports with your clients, your buyers and sellers, now might be the time to step up. Go to altosresearch.com and book a free consult with our team. Because everyone is worried about what’s happening right now. They need you to help them see clearly. The data we cover here in these national videos is available for every zip code in the US. Join us to dive in.

I’m Mike Simonsen, I’m the CEO of Altos Research. Here’s what the data looks like for the first week of December 2022. 

 


Real Estate Inventory


After the Thanksgiving weekend available inventory of homes for sale dropped by 2.5% to 549,000 single family homes. Inventory is declining as happens this time of year, because even as some sell, people with homes listed that aren’t getting any buyer traction are very tempted to withdraw the house over the holidays. Both cases contribute to shrinking supply. 

Inventory will keep dropping and we’ll end the year at 520,000 or so single family homes on the market. This week was right about where the model has been projecting for a few months. It’s wild though that we probably only have 6 more weeks of declining inventory. While during the pandemic with the surging buyer demand, inventory kept declining through March, there are many years where the low point of inventory is in January. With demand so low right now, you have to expect that 2023 will follow that pattern. New spring supply starts coming on the market but spring demand is low so inventory starts building in January. If mortgage rates ease down into the 5s that’ll help demand and keep the available inventory lower.

 

New Listings

 

When we dive deeper into the supply data, you can see how few homes are getting listed in this chart of new listings and immediate sales. Each bar here is a week counting the new listings that week. The light red portion of the bar are those that got listed and went into contract essentially immediately.  During the pandemic, this immediate sales was the dominant phenomenon with bidding wars and homes getting sold essentially immediately after listing. 
This week there were fewer immediate sales than even Christmas/New Years last year. We have 30% fewer new listings each week than last year at this time. At that time of course everything was being purchased as quickly as possible with mortgage rates at all time lows. So available supply stayed low. Now supply is low because no one is selling. 

Next week will see a little rebound in listings, but it’s still trending lower through the end of the year. 

 

Pending Sales


Because even as new supply slows to a crawl, demand is also really quiet. We have under 300,000 single family homes in contract right now. That’s 33% fewer than last year at this time. We have the fewest homes going into contract each week since the beginning of the pandemic. 

Purchase activity picks up immediately after the new year of course and we’ll keep an eye on how low this goes in the next 4-6 weeks and how quickly or slowly it rises in January. As we’ve had a little good news about the pace of inflation in the last month, mortgage rates have ticked down. You can see the consumer response in mortgage purchase application data, which have been ticking up in the last few weeks. 

Our observation is that 5.5% interest on the 30 year mortgage is probably the threshold for buyers this year. Rates are over 6% right now. If by January they drift into the 5s, we’ll see pendings start to tick up as people buy homes this spring. If rates stay in the 6s or 7s, the pace of transactions in Q1 will continue to be very very slow. 

Home Prices


Home prices continue to slide down in the second half of the year. The median price of single family homes in the US right now is $415,900. This will end the year right about $400k.

The price of the New Listings - that’s the cohort of homes that hit the market in a given week, always takes a big dip over Thanksgiving, and this year’s dip was bigger than normal. Which is not surprising. We’ll get a little rebound in the new listings data this coming week. But the homes getting listed for sale now across the country are at essentially the same price they were a year ago at $350,000. Since these homes get listed now, they get offers in January, February, they close in March and April, you can already see where those transaction prices will end up in Q2. There is only downward pressure on sales prices at this point. There is no opportunity for home prices to increase in 2023.

 

Home Price Reductions


In our price reductions watch we can see seasonality finally taking hold. Currently 42.5% of the homes on the market have taken a price cut. We’ve had three consecutive weeks of declining price reductions. That’s as homes sell or get pulled from the market over the holidays.  So we’re past the peak. You can see how every year price reductions accelerate through the end of the year and then usually through January as well. You get new inventory in January and they don’t take price cuts until later in the quarter if they haven’t sold yet.  Each line here is a year. The dark red is this year, the light red is last year. When Americans were buying everything taking advantage of those ultra cheap financing rates, sellers didn’t have to cut prices. Next month we’re going to watch how far price reductions decline and at what point they start kicking in again. That’ll be telling about how the rest of the year will play out.


This is of course national data and the local markets are behaving very differently from each other right now. If you need to get your local data to your buyers and sellers right now, you should join us at Altos Research. Go to AltosResearch.com book a consult with our team to learn how to interpret this crazy market for the people who need it most right now.  They need you to be the expert for them.

If you're interested in keeping up with the housing market, I also encourage you to sign up for our weekly real estate market updates. Every Monday, I break down all the latest numbers on home prices and inventory, and look at the trends we can see in the Altos data weeks or even months before you see them in the headlines.

 

You can also run a free Altos real estate market report for any zip code in the U.S. and receive an update on that area in your inbox every week.

 

And, if you want to learn how to read and interpret all the stats in the report, I encourage you to download our free eBook: "How to Use Market Data to Build Your Real Estate Business."

See you next week!

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