Two weeks in a row with inventory climbing, and price cuts seem to be accelerating. These are market slowing characteristics, and they seem suspiciously coincident with the spike in mortgage rates to over 6% a couple weeks ago. Our forecast model expected inventory to rise this week, so it’s not a big surprise, but it is a little signal worth paying attention to. The forecast model has a few more weeks for inventory to rise before the fall reset.
My interpretation: home buyers are very sensitive to mortgage rates now. When rates spike, it quickly removes a group of buyers from the market. So we quickly see fewer offers. Sellers notice this, so we see more price cuts. And we have fewer homes go into contract, so inventory builds a little. These are the nuance changes we can watch week to week in the data.
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I’m Mike Simonsen, I’m the CEO of Altos Research. Here’s what the data looks like for the week of September 26 2022.
Available inventory of unsold single family homes rose for a second week in a row this week. There are now 557,000 single family homes on the market. That’s less than 1% increase week over week. It’s not totally unheard of for inventory to rise a little bit in September, but it sure feels like home buyers are reacting immediately to that jump in mortgage rates two weeks ago.
Inventory is 27% higher than last year at this time, and still 42% fewer than this point in 2019. We can really see the inventory spike in the biggest boom/bust markets like Austin and Phoenix. To me this feels less like seller panic and more like an abrupt slow down in the buy-side demand. That leads to a buildup in inventory as the houses are unsold.
You can see this trend in the new listings chart. We’ve had a couple weeks with a little uptick in the unsold new listings. These are the homes that were listed and stayed on the market more than a few days. The immediate sales phenomenon that we talk about during the pandemic boom made this dark red line stay low all year. Each line here is a year. So as buyers slow now we see a little uptick in the new listings that stay on the market. If economic uncertainty or rates or other macro influence were causing home owners to want to sell to get out, then you’d see this dark red line rising faster. That’s my interpretation. You can see earlier in the year in May and June that’s exactly what happened. For people considering selling in the summer many of them hurried to list in May and June and you can see the new listings line finally climbed above recent years. That’s not happening now. So this is a signal that the rates are directly impacting buyers but sellers' motivations haven’t changed.
If changing economic factors start to frighten homeowners into selling, we’ll see inventory rising later in October. That would indeed be unusual and something to pay attention to. For now, we’re still keeping our end of year inventory forecast to about 470 or 475,000 single family homes on the market. Expect 2023 to start with about 470,000 homes on the market. That’s much lower than we were expecting given the trends from June and July, but the trend has leveled off so we’re keeping the forecast steady for now. Still expecting this shortage even as buyers slow way down.
The median price of single family homes in the US is $439,000 this week. That’s down a fraction from last week, precisely as you’d expect for this time of year. As I’ve been pointing out lately, the negative pricing pressure is clear in the biggest boom markets, but across the country most markets aren’t under tremendous pricing pressure. There is no sign in the data for rising home prices next year. Flat at best. And if rates rise further, or if recession hits deeply or other big macro factors, you could imagine scenarios where the market slows further from here. Expect the median price of single family homes to step back each week until the end of the year to closer to $415,000 or so.
Price reductions sure seemed to accelerate with the recent spike in mortgage rates. This week 41.2% of the single family homes on the market have taken a price cut from their original list price. The pace of new price cuts had leveled off in August, but accelerated again over the last couple weeks. Price cuts climbed from 40.6% last week to 41.2% this week. Typically price cuts don’t peak until October, and this is visible in the dark blue line here, which is 2018. We’ve been talking all year about 2018. That was the last time we saw rising interest rates. In 2018 rates rose from 3.9 to 4.9%. This year rates spike significantly more aggressively. And they spiked a couple weeks ago from 6 to 6.5%. Then pop, we see the price cuts tick upward at the same time. The regions with price cuts in the upper 50s or even in the 60s, those are pretty bearish signal for home prices in the next year.
Most homeowners in those markets are fine, but for those who bought at the peak and then maybe next year face job losses as a potential recession rolls in, there will be some pain there. It's a small percentage of the market, but it’s going to be painful. For buyers in these markets, the selection is improving, but also the seller worries that they’ve missed their window. Those are buying opportunities we’ve not seen in this country for many years. I’m going to be interested to hear anecdotes of buyers finding deals.
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