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Real estate market starts to thaw as mortgage rates drop

By Mike Simonsen on December 19, 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.

As inflation and mortgage interest rates ease down this December, the ice cold real estate market of the fall seems to be thawing just a bit. Available inventory of homes on the market is declining faster that we expected - implying slightly more purchases than we expected. At the end of the year inventory always declines of course, but the last two weeks have come in with bigger declines than expected. If you continue to assume that buyers aren’t buying, then you’d also assume that inventory would decline less than normal in December. But inventory is declining faster than I expected. You could interpret this as good news, or maybe as less dramatically bad news. The market opens up a bit as rates ease back down.

I’ve mentioned that the second-and-third week of January is when we’ll see more meaningful signals for how the 2023 real estate year will look. The thing to keep in mind right now, is these are just a couple data points.  They’re pointing a little better. They’re not pointing to the market tanking from here.

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 founder of Altos Research. Here’s what the data looks like for the third week of December 2022. 

 

 

Home Prices


The median price of single family homes in the US ticked down to $410,000.  That’s down 1.2% this week, which is precisely what’s expected for the third week of December. Home prices will end the year right around $400k. That’ll mean we end the year with 10% home price growth across the country, even though many local markets are way off their peak of pricing. Nationally home prices are still up significantly from last year. 

The second week of January will be the low point, before prices turn higher with new inventory in the first quarter. What’s uncertain still on this pattern is how quickly home prices adjust in January. Even though mortgage rates are off their highs and drifting lower, affordability is still much much more difficult than last year at this time. Plus we have economic uncertainty for the coming year. My gut is pretty bearish for home prices in 2023, but so far the data is holding up at least when we look at the national view. Some local markets are under much more aggressive pricing pressure. Places like Phoenix and Austin home prices are already below last year.


Real Estate Inventory

 

Available inventory is down 2.5% this week to only 521,000 single family homes on the market. That’s a bigger drop in inventory that our model was predicting. The model has been assuming that buyers are still as frozen as they were in September and October so inventory wouldn’t sell and even when a lot of homes get withdrawn for the holidays, that would mean that the total available inventory fell by maybe 1%, but we had another 2.5% decline.  The bottom line here is that we don’t have any signs of skyrocketing inventory, for example with panicky sellers for 2023. Therefore the most bearish of housing market predictions don’t show up in the data yet. That bearish scenario is that supply jumps up while demand craters. While we continue to expect more inventory next year, these signals don’t indicate huge jumps in inventory.

Inventory is 37% lower than 2019 before the pandemic craziness started. You can see 822,000 single family homes on the market just before Christmas in 2019. Current available inventory is 60% higher than last year at this time when rates were still hovering around 3% and Americans were buying everything they could with those bargain financing conditions. 

But back to today and the end of the year. Since inventory fell more quickly than I expected this week, the end of the year inventory levels will be closer to 500,000 than the 520,000 we have been predicting recently. Inventory may fall under 500,000 before the first Q1 bounce in the middle of January.

Because affordability is so stretched with higher mortgage rates, the American homebuyer is proving to be very sensitive to these mortgage rate swings. Mortgage rates dropped closer to 6% last week with the latest inflation numbers. If they continue to drop into the 5s by January, you should see the inventory curve stay pretty flat for the year. If on the other hand rates are closer to 7 or above, then we’ll see significant inventory build during the year.  Next stop is that mid-January check point.

 

Pending Sales


Even as supply remains low, demand is also very low right now. We have 35% fewer homes in the contract pending stage than last year at this time. In this chart each bar is a week with the total count of homes in contract. The light portion in each bar are those newly in contract that week. You can see how small the light part is growing each week as we approach the end of the year. Keep in mind that the pandemic Decembers were unusually active. During the 4th quarters of 2020 and 2021, American homebuyers bought way more homes than usual at that time of year. You can see how much slower the market is this year than last. The pendings will dip a few more weeks before rebounding in January. 2023 will have much fewer transactions than 2022 of course. The signal we’ll be looking for is how much of a bounce we get in January.  Do pendings keep falling when they should start climbing? Stay tuned. 

 

Home Price Reductions


As rates have come down and as we wind up the year, price reductions are on their normal seasonal curve down now. Homes are sold or withdrawn and so each week slightly fewer homes on the market are sitting there with price reductions. See the top line here is the curve for this year. Currently 41.2% of homes on the market have had price cuts. That’s a good drop from last week and the fewest since late September. That’ll keep falling into the new year. Again, these are just minor signals that the worst of the potential housing scenarios are not in the data. But that trend can reverse quickly with another spike in mortgage rates.

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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