Sellers Are Coming Back to the Market. Can Buyers Keep Up?

Each week for several months now, inventory levels of unsold homes on the market has been expanding compared to last year. Even as inventory declined this week, it’s growing compared to a year ago. This week inventory fell by half a percent. A year ago it fell by 3% in the week. 

New listings each week, which were record few last year, are growing now, and home sellers are gradually easing back into this market.
 
Can demand keep up?

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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 February 12, 2024. Please refer to the video below for all the charts I mention in this transcript!

New Listings

I want to start today with the new listings volume, which is notably finally climbing over last year’s anemic levels. There were 66,000 new listings this week, of which 14,000 are already in contract. That’s 14% more new listings than for the same week a year ago. Sellers are coming back to this market

14,000 of those new listings are already in contract. That leaves 52,000 new listings unsold to add to inventory. That’s the most since 2020 - before the pandemic. In 2021 there were actually more total sellers, but at the peak of the frenzy, so many of those were immediate sales that they never get counted as active inventory. So the net result is that we can see sellers who sat on the sidelines a year ago, are starting to ease back in.

This is the new listings volume chart. Each line here is a year. The gray lines are years past. The dark red line at the left end of the chart is the start of 2024. We’ve been talking for weeks about growing inventory. You can see here this week 14% more new listings than last year at this time. See how the dark red line is starting to trend higher than the light red of last year. Each week more sellers than a year ago. 

This chart is also useful in that It shows us that we still don’t have a lot of sellers. It shows recovery, not panic. There are 25 or 30% fewer sellers each week now than there used to be. But it is climbing. See the lighter gray lines are years past. 65 or 70,000 new listings used to be common in February. So this is an indication of the real estate market’s deep freeze finally thawing. 

The takeaway here is: we can see new sellers, more than last year. It’s not a ton of sellers. But it is growing. 

Immediate Sales

If sellers are growing we need to know if buyers are growing too. We wouldn’t want supply and demand to get out of balance. So when we watch new listings build, a key factor I track is the immediate sales. These are listings that hit the market and take offers within hours or a few days and then go immediately into contract. They essentially bypass the active market. These immediate sales were the defining characteristic of the pandemic real estate boom. Those included bidding wars and multiple offers. There are still immediate sales which happen in every market. We want to know how many because it tells us about housing demand.

In this chart we’re looking at the new listings volume and how many were immediate sales. Each bar is a week. The taller the bar, the more sellers. The light portion of the bar are the immediate sales. Of the 66,000 new listings this week, 14,000 of those are already in contract. That’s 6% more immediate sales than last year at this time. So immediate sales are growing just a bit.

The dotted line helps you see that we have nice growth in seller volume versus last year. And a big jump this week - 18% more sellers this week vs last week. 

In 2022, two years ago, there were still a lot of people trying to get the deal done in February before mortgage rates went up. For the same 66,000 new sellers in 2022 there were 21,000 of those that went into contract immediately after listing. It’s only 14,000 this week. But last year it was even fewer. So each week more sellers are testing this market, more buyers are finding their opportunities. This is obviously no boom market like two years ago. And therefore inventory is building a little longer.  

See how much taller this week is than last year at this time. More sellers and more immediate sales.  Because supply was so tight last year, there was probably more upward pressure on home prices than there is now.  Which is an interesting leading indicator to pay attention to.

Inventory

OK, so we see more sellers entering the market, but that doesn’t mean inventory is jumping. In fact there are now 495,000 single family homes on the market now. That’s half a percent fewer than last week. We have more buyers than sellers this time of year so the active inventory of unsold homes ticked down this week. The difference is that inventory ticked down half a percent. A year ago inventory fell by 3% in the same week. This is what I mean that home prices had more upward pressure a year ago. 

Inventory declined this week but is now 12% more than last year at this time. While is it totally expected that we have more buyers than sellers in February, fewer homes on the market each week, that half a percent decline is pretty narrow. This implies that inventory will start growing week over week pretty soon. And the spring buying season will have improved selection for home buyers.

When we look at the chart with each year’s curve here you can see that inventory is ticking down a bit like you’d expect in February. Flat or down. In the pre-pandemic years, inventory would have typically bottomed by last week. Last year’s relatively strong demand compared to very few sellers meant that the bright red line dipped a lot in that first week of February 2023. At the time I was pointing out how home buyers would start pushing prices up and a lot of folks didn’t believe the data. This year is not as strong because we have more supply. This is a good signal for total transaction volume in 2024, but is not as bullish for home price appreciation. Number of sales will keep climbing. Prices probably not as much.

New Pendings

With more inventory and more sellers, comes the opportunity for more sales to happen. This week saw 61,000 new single family home sales transactions started. That’s 9% more than a week ago and 3% more than a year ago. 

Last year was so restricted with so few home sellers that sales were ultra low. That is starting to change. Or at least the market is trying to. 7% mortgage rates aren’t helping sales volumes. As I said this week saw 3% more home sales transactions started than the same week a year ago. The last few weeks did not show any growth over the previous year. That’s discouraging because last year was so slow. But this week sales ticked up again, maybe people are coming out of their deep freeze. Unfortunately mortgage rates ticked up too and that held back some buyers for sure. So the sales rate growth is definitely weaker than the data was looking a month ago.  

In this chart each line is a year, see at the left end the dark line is trying to break above last year. I imagine that if rates fall into the lower 6s in the next few months, you’ll see the dark line approaching the sales pace of 2022 by mid year. If rates stay at 7% or higher our yearly gains will evaporate and we’re in for another super weak year of home sales. You can still see a lot of headlines that say home sales are coming in record low, and this is what they’re referring to. The bearish interpretation of this trend is that home sales are not growing. Basically about the same as last year. The last few weeks sure look bearish in that sense and of course mortgage rates have been rising now for 6 weeks. So you can see how that slows would-be home buyers very quickly. Fingers crossed the American home buyer gets a lucky break in the next few weeks and months.

Home Prices

Median price of single family homes is $425,000 again this week. The price of the new listings is also unchanged at just under $400,000. 

Here we’re showing six years of home price appreciation. Homes are just a little more expensive now than last year at this time. Up until recently I’ve been expecting mostly positive pressure on home prices all year long. But we got hit by extra strong jobs news, which pushed the bond market higher and therefore mortgage rates jumped back to 7%. If that trend continues, that will keep home buyers at bay, and each buyer who doesn’t make an offer means slightly more downward pressure on home prices.

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