Real Estate’s Strong 2023 Finish

Happy New Year! The last week of data for the 2023 US real estate market is in, and pretty much all the signals for housing in 2024 are now pointing towards growth.

Inventory is slowly but steadily increasing over last year, which means slightly more options for buyers this spring. Sales rates are climbing too. We have more homes going into contract each week now than we did a year ago. So supply and demand are climbing together. 

Home prices are also inching up. Prices are not rising uncontrollably like they were during the pandemic; they’re much more stable now. This implies that there are more than enough buyers at these prices and these mortgage rates to keep activity happening in housing.

While a robust housing market is generally a positive thing, this is not all good news to every person. Home sales volumes and prices are increasing, yet we still have an intense affordability crisis in this country. There are millions of would-be homebuyers who are simply priced out of the market. The current data for housing supply and demand, all the leading indicators for 2024 indicate that the affordability crisis is unlikely to improve this year. Maybe we get cheaper mortgage rates and that will help payment affordability, but remember that cheaper rates means more buyer competition. Since demand for houses is already pushing prices higher, more demand means more upward pressure on home prices. 

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. Let’s look at the data coming into the first week of 2024. Please refer to the video below for all the charts I mention in this transcript!

Inventory

The year finished with 513,000 single family homes on the market. That’s fewer than last week of course it’s the holidays, but it’s almost 5% more than where we ended 2022. Each week sellers are easing back into the market a little more than last year. The defining characteristic of 2023 was how few sellers we had. Each year that mortgage rates are elevated mean fewer people are locked in to low rates, so our resale inventory grows. 

I’ve illustrated 10 years of inventory history here. You can see that we have slightly more homes on the market now than last year. That gap is growing each week. There are still 34% fewer homes on the market than in 2019. That gap has been narrowing. Higher mortgage rates means greater inventory, and over the next few years if rates stay high, you can imagine inventory building closer to the old levels. A few years.

This is national data, it’s not the same pattern everywhere around the country. Texas for instance is looking like it’ll get closer to pre-pandemic inventory rates maybe this year. Much of the country though is still at record lows. 

Here’s what to watch for the next few weeks in the inventory numbers. Does inventory start climbing in Q1 like it used to? Or do we have more buyers than sellers and inventory falls into Q2 like it has in the last several years? A year ago, we expected a slowing market and slowing economy to help the inventory of unsold houses to build in Q1. But at the time mortgage rates fell and buyers jumped in. In 2023 inventory fell all the way into May before finally building. Will that pattern happen again this year? If you look at the 2019 curve in the middle of the chart where I’ve drawn the vertical line, you can see how inventory used to turn flat right after the new year. So that’s the signal we’re looking for this January. Will the 2024 market look more like 2023 or 2019?

Sales Rate

So supply of homes on the market is slowly improving. When inventory is growing relative to last year, the first thing I want to look for is imbalance. If inventory grows and sales volume falls, that would be a bearish signal. But that’s not what’s happening. What’s happening is that sales are also growing vs the same week a year ago. In fact, over this last holiday week there were 20% more new contracts started than the year prior. 

In this chart we’re plotting the new contracts pending each week and comparing them to the same week a year prior. There’s a dotted line at 0%. When the home sales market is expanding, the data is above that line. When the market is shrinking, the data is below that line. All year long last year, we were below the line. All year long the headline pending sales numbers were declining. If you follow the NAR pending sales number the most recent prints were a rate fewer than 4 million annualized. In November, we finally shifted back to growth. We’re now consistently measuring more new contracts started than the year prior. 

Now, this most recent reading is a holiday week. And this is growth off of very low levels. Don’t read too much into it. Next week could dip again, just due to when the holiday lands. But, it is notable that the bounces continue to point up not down. If 20% sales growth were to continue, that implies nearly 5 million existing home sales in 2024, up from 4 million in 2023. Wouldn’t that be a surprise?

Pending Sales

OK so that’s the new contracts each week. When we look at all the homes in the contract pending stage, we’ve crossed a growth threshold there too, finally. There are now 258,000 single family homes in contract. That’s 2.4% more homes in contract now than a year ago. The sales are growing in 2024. We had 51 weeks in 2023 with fewer sales in the pipeline than in 2022. But that gap has been closing and in the last week of the year, now we have a few more. 

In this chart the height of each bar is the total count of single family homes in contract. These are sales pending. The light portion are the new contracts started this week. That’s the data we just looked at. The new pendings each week have been climbing for a couple months now. Finally we’re at the stage where the total number in contract are greater than 2022. This tells me we’re pretty much guaranteed to complete more home sales in 2024 than 2023. That is barring some black swan event of course. 

If the economy slows this year and unemployment starts creeping back into reality, one place we’ll be able to track the impact on housing very quickly is here in the pending sales data. As of right now the housing market is growing. 

Price Reductions

We’ve been talking about sales volumes - the number of people buying homes. Sales rates however are different from prices. We could have a year where sales grow but prices remain flat. As of right now however, the leading indicators for home sales prices in the US are also showing some strength. As of the end of the year, price cuts for the homes on the market are declining. Fewer sellers feel the need to reduce their asking price, that’s because the buyers are there. I’ve been illustrating the buyer demand so far. 

We’re starting the year with 34.8% of the homes on the market having taken a price cut from the original list price. That’s 150 basis points fewer than last week. The curve happens over the holidays and into the new year as we get fresh inventory. Price reductions are now in what we call the “normal range.” Normally between 30 and 35% of the homes on the market take a price cut before they sell. In this chart we’ve highlighted the gray band for the normal zone. Each line is a year. 2024 at the left side of the chart starting the year just under 35%. That’ll continue to fall in the next couple months with fresh inventory. The question is how far. 

Here’s how to read this chart: Price reductions peaked at 42% nationally in November of 2022. If you follow the sales price indexes like the Case Shiller, you’ll know that home prices hit their recent low in April, 5 months later.  But by April, we could already see the red line was below normal. We could see that fewer sellers needed to cut their prices. So even while the headlines were reporting sales prices falling, the leading indicators were already on the upswing. We ended the year with home price gains of 3-5% nationally. So in January and February, watch this price reductions trend. If it falls below the gray zone, you should expect home prices to climb in the second half of the year. 

Home Prices

Home price trends in Q1 really inform the view for the whole year. The Median price of single family homes in the US is now $415,000. That means we finish the year with home prices up almost 3% over last year. That’s not a roaring market by any means. But let’s call it price stability. It means that American homeowners gained equity in their already really strong financial position. The leading indicators for 2024 are looking similar. None of the indicators are pointing down for home prices. We already discussed how inventory is climbing and how the sales rate is climbing too. 

It can be a little hard to grok how home prices can be inching up when mortgage rates are so much higher than a few years ago. But the observation is this: consumers are more sensitive to changes in rates than to the absolute levels of rates. So as rates settle into the 6s or 7s this year, expect more sellers, and slightly higher prices. If rates jump back over 8%, you’ll see that impact very quickly here, in the bright red line. You’ll see it in the price reductions too. Here the bright red line is the price of the new listings each week. This week at $355,000 the price of the newly listed homes is nearly 5% higher than last year.  Like the sales rate data earlier, this is a holiday week, so don’t read too much into it. But it is notable that it keeps climbing. The first week of January has the lowest price point all year, then prices start climbing with fresh inventory in the next couple weeks. 

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See you next week!