Pending Home Sales Prices Hit All-Time High

Even after a couple weeks of mortgage rate jumps, we’re still seeing surprising strength in key elements of the housing market. In fact, some measures of home prices are now at their all-time highs - surpassing the previous peak of two years ago - and sales volume continues to grow.

Will these conditions persist if rates remain high?

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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 April 22, 2024. Please refer to the video below for all the charts I mention in this transcript!

Inventory

When we look at the active inventory of unsold homes on the market, we can definitely see the impact of higher mortgage rates in the last month. There are 543,000 single family homes on the market now. That’s a 3% jump from last week and there are now 31% more homes on the market than last year at this time. Available inventory of unsold homes on the market is building quickly with the latest mortgage rate jumps. There are 130,000 more homes on the market now than last year at this time. 

In this chart, I have the yearly inventory curves. Each line is a year. Normally inventory is climbing at this point in the second quarter. We’re rapidly approaching the peak of the market, seller list and now, inventory builds, the sales rate peaks at the end of June. So it’s normal that inventory is building now. But when you add a spike in mortgage rates that makes home buying less affordable, that leads to fewer buyers and inventory builds. And in the dark red line, you can very clearly see how there’s an inflection point in April. With this latest mortgage rate jump inventory growth has accelerated.

This is what I mean when I say that higher rates leads to greater inventory. We are on the path to getting back to the old-normal levels of unsold homes on the market. A couple years more with elevated rates. Will get us there. 

But that’s why I also point out that falling rates reverse this trend. Lower rates mean people snap up the existing inventory and this number will fall again. 

New Listings

Growing inventory is not just about demand slowing. We are also consistently measuring more sellers coming back into this market. At 69,000 new listings unsold, that’s 3% more than a week ago and 14% more sellers than last year at this time. In fact there are more new sellers this week than in any week of 2023. This selling season still has potentially two more months of growth. I’d love to see 70 or 80 thousand new listings per week in May. More sellers means more sales can happen. There’s a limit, we could get to an imbalance with too many sellers, flooding the market, and too few buyers. But we’re not close to that yet.

In the years before the pandemic, the last few weeks of April would normally see 80, 90, 100,000 new listings in a week. Now we’re at 69,000. Obviously, elevated mortgage rates slows both buyers and sellers. There are lots of people who will never sell their house with a 3% mortgage. There’s unlikely to be a flood of sellers probably for years, but we can see steady growth. Each year with higher rates will get us more growth, fewer people locked in to low rates, and more people resell. That growth is good for the market. 

In this chart the gray lines are years past. The higher the line, the more seller activity. The gray lines show us how there are 30% more sellers in any given week in the spring. Last year’s light red line here shows how few sellers there were. 

Available inventory of homes you can buy and the new sellers each week are what consumers care about. If I’m buying a house, do I have any houses to buy? For homebuyers, that selection now is the most they’ve had in years. 

Professionals in the real estate market on the other hand have to care about transaction volume. How many home sales are happening? Because there were so few sellers last year, the number of sales was incredibly constricted. That’s starting to change. 14% more sellers is a really good sign that sales can grow.

Pendings

And when we look at the sales rates, we can indeed see that home sales are growing. There were 71,000 new contracts started for single family homes this week. That’s 3% more than last week and 7% more than a year ago. There are still 8% fewer sales happening each week than in 2022. At that time two years ago, there were frantic last deals getting done as mortgage rates were obviously rising quickly. So even though rates were up then, sales were still strong. But the pandemic crazy pace of sales had slowed, so inventory was building very quickly. In 2022 the new sales rates really cratered after the 4th of July holiday.  In this chart you can see the dark lines are consistently above last week with more sales each week, but the pace is still below most of the gray lines from years past. 

There are now 385,000 single family homes in contract. That’s 5% growth over last year. And still  14% fewer than two years ago. New sales started this week is 7% growth and the total number of homes in contract is 5% growth. It takes 30-40 days for sales to close, typically. These homes in contract now will close mostly in April and May.  5% growth is less than we’d hoped for at the start of the year, but it’s creeping up, even as mortgage rates are higher. 

At Altos we don’t seasonally adjust our numbers. We’re doing direct measurement. There are 385,000 single family homes in escrow to complete a sale. If you were to approximate a seasonal adjustment on the Altos number you can see about a 4.4 million sales pace for April 2024. That pace is up from last April, but slower growth than most Aprils. The seasonal pace is where you can see the slowdown from higher mortgage rates.

The takeaway from the weekly new pendings data is that even though home sales continue to outpace last year, that growth has definitely slowed. Sales are trying to climb but there are still no signs of real strength.

Home Prices

The median price of single family homes in contract is $398,000 now. That took a little 2.4% jump this week. And is in fact at a new all-time-high, finally surpassing the sales prices of two years ago. These spring weeks are indeed the time when home prices climb, so that’s not too surprising that home prices are climbing now. But we’ve been keeping a close eye on home prices in the face of these rising mortgage rates. 

In this chart you can see how the prices of the homes going into contract are 6% more expensive than a year ago. Last year at this time home prices were lower than April of 2022. But we’re now back at all time highs. The previous peak was $395,000 two years ago, and this week we’re at $398,000.

What I find interesting in the price data is how slow this climb is. The dark line here for this year is up only 6.6% from January 1. Most year’s there’s like a 10% climb by this time in April. So, as a leading indicator for how the year ends up, the price signals are much softer than usual. 

We can see this in the asking prices too. The median price of all the homes on the market is $449,000. That’s up a fraction from last week and only 1% above last year at this time. You can think of the asking prices as a leading indicator for future sales prices. Homes are on the market now, they get offers in May, close in June and you’ll hear about those in July. So the future signals for home prices aren’t falling with higher mortgage rates, but they sure look like price appreciation has slowed.

Price Reductions

And my other favorite leading indicator for future home sales prices are the percent of homes on the market with price reductions. If more homes have to cut their prices now, that’s a real signal for sales that will happen out in the future. Surprisingly, given the mortgage rate changes, there was no jump yet in price reductions. We’ve been watching this stat closely. 

32% of the homes on the market have taken a price cut. That’s actually down a fraction from last week, given a relatively strong set of new listings hitting the market and home sales are at their highest point of the year.  Fresh inventory doesn’t take a price cut until after it sits without an offer for a while. There are 3% more homes now with price reductions than a year ago. Last year at this time, price cuts were still decreasing with very very tight new listing volume. There are more homes on the market now with price cuts than in any April. So that shows weakness in prices, but it’s not super high, and it’s not skyrocketing, so that implies we don’t see prices tanking any time soon. 

I think the reading here now is that with the 30 year fixed mortgage at 7.4% there is still just enough sales volume to keep home prices from dropping like they did in late 2022.  See the 2022 line here, the light red line, price reductions were exploding at this time. The current market is not changing nearly that quickly. We’ll continue to watch this price cuts data. As mortgage rates make homes less affordable, fewer offers get made, and some sellers will cut their prices. That could still accelerate in the next few weeks. 

That’s why we do this data work each week. This market is trying to grow, but homebuyers are obviously sensitive to the cost of money. 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. If you need to help buyers and sellers see the actual data, you should join us at Altos.

Go to AltosResearch.com and book time with our team to learn more.

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