Price reductions accelerating as housing demand cools

Inventory is increasing. And price reductions are climbing too as buyer demand backs off with higher mortgage rates and new uncertainty in the strength of the economy. Because it’s May and this is when people buy houses, the median price of homes in the US hit a new record this week too. That shouldn’t be as surprising as it sounds. Yes we can see the early stages of this market normalizing, but yes, we’re also hitting the annual peak of home prices.

Median Home Price

The median price of single family homes in the US the week hit $435,000. We’re getting really close to the peak price for the year. Some time between now and the end of June. Normal pre-pandemic years, home prices peak in June. In 2020 as the market was just starting to go nuts, prices didn’t peak until mid-August. Last year with the frenzy still on, prices peaked July 15. Based on that history, we should expect 3 weeks of home prices climbing. June 5th somewhere about $440,000. There’s a little noise in prices, they’ll bounce a bit around the top as acceleration slows before the crest and prices decline for the second half of the year.

The price of the new listings, that’s the cohort of homes that get newly listed in a week, will crest generally 3-4 weeks prior to the full market. The price of the new listings peaks each year in April or May. With the median price of the new listings at $425,000 now, down from $429,900 last week. That indicator has probably peaked.

So taking all that together, is why it looks like home prices still have a few more weeks of inching up. If for example the median price of homes in the US falls next week and the week after, that’d be a real signal of cooling. That’d be the earliest peak of home prices in the year we’ve seen in a decade. I don’t expect it yet. But we’ll keep a look out for it.

Housing Inventory

Available inventory of unsold single family homes rose over 4% this week to 318,000. 4-6% weekly growth in available inventory is the story for May. It’s going to continue into June. Last year at this time we had only 313,000 homes on the market so we now have year over year gains. This is the first time we’ve had year-over-year increase in inventory since 2019. Available purchase inventory has been falling each year for a decade as Americans have turned 8 million or so home from resale into rental investments. The only times inventory increased year over year was 2019 and starting again right now now.

In 2019 this was the after effect of rising interest rates during 2018. 902,000 homes were on the market mid May 2019 vs. 850,000 homes the year before. This implies that we have a year at least of rising inventory in front of us now. You can imagine that by next year we’ll be in the 500-600,000 range. Significantly more selection for buyers, but still fewer than any year before the pandemic.

That’s important perspective to keep in mind as we watch the impact of higher rates hit home buyers and sellers. Because inventory has been in such a crisis shortage for so long, there are lots of buyers, who have been shopping for a long time, they’ve been losing in bidding wars, they have their cash lined up, their financing in order, but they still want to buy their house. And so they’re still buying.

Immediate Sales at 25%

We see this demand in the immediate sales tracker. This week 25% of the new listings that hit the market went into contract essentially immediately. That’s just over 24,000 listings. 25% taking offers immediately when they list is still crazy high demand. It’s down from a peak of 33% in March. Last year at this time 29% of the new listings went into contract immediately. So you can see we’re going 100MPH down the freeway and we take our foot off the gas, we’re still going very fast.

Peak listing weeks are still a month off, and as we have more new listings, we have generally fewer bidding wars, because buyers have more selection. Last year in June 24-25% were immediate sales. I think we’ll be under 20% by next month.

Price Reductions

As that change happens, it’ll start to feel much less anxious for buyers, but that anxiety will shift to sellers who overpriced too late in this cycle. Price reductions are climbing rapidly across the country now. I’ve been using this annual comparison chart to show price reductions compared to last week, and also compared to last year, and compared to normal years.

Price reductions jumped from 19.8% to 20.9% this week. So almost 21% of the homes on the market have taken a price cut. That change from last week is really palpable. It’s the biggest weekly move in a long time. That’s why on Twitter you can see lots of anecdotes by observers in their local markets saying “wow, suddenly lots of price cuts!” If you’re listing your house now, don’t be fooled by January’s bidding wars. We’re still a long way from “normal” though. If this trend continues that by August we’ll be back to a normal 35% of homes on the market with price reductions. That’s not a bad market, but for sellers who thought they were going to be out with a bidding war day one, it’s going to be scary.

And that’s the data for this week:

• Home prices in the US hit a new record high even as inventory starts to finally build a little selection for the beleaguered home buyers. We’ve been doing 100 on the highway and the foot is off the gas.
• The challenge in this changing market is going to be felt most acutely by those sellers who overpriced and missed their window.
• Some of those sellers are going to get lucky and get their offers. Some of them are going to panic.