Signs Point to More Inventory This Spring

Home sellers are finally starting to ease back into the market, and new listings each week are now exceeding last year's levels. As a result, we’re starting to see slightly more available inventory of homes on the market.

The longer we stay with mortgage rates higher, the more inventory will build up closer to where it used to be. Each year we’ll have 5 million more people who don’t have crazy low rates that they want to hold onto forever.

If mortgage rates fall into the 5s this spring, I would expect available inventory to decline as demand picks up rapidly. But as of now, rates are holding in the upper 6s and inventory is building slowly.

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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 January 15, 2024. Please refer to the video below for all the charts I mention in this transcript!

Inventory

There are just over 505,000 single family homes on the market across the US now. That's a 1.2% increase over last week and nearly 7% more than last year at this time. So inventory ticked up this week. Each week recently, the gap between this year and last year has been widening. This week the supply of active inventory gained over 6000 homes. That would have been a big week any time last year. These are the signals that point to growing inventory of homes on the market all spring. 

In this inventory chart, each line is a year. At the left side of the chart you can see the 2024 line is just starting. Each week it’s pulling a little ahead of last year.  There is no signal of a flood of sellers, it’s not spiking. But it certainly looks like 2024 will have easier conditions for buyers than last year. This looks like a persistent trend. 

If you look closely, the bright red line for last year ticked up in the second week of January before declining all the way to May with falling mortgage rates. This year rates are higher than they were a year ago and while they’re off the peak from November, mortgage rates actually climbed a little in the last month in the upper 6s. And as a result inventory is building. Even if inventory ticks down next week, it looks like that will be a smaller move down than last year, so the year-over-year percentage gain will continue to widen. 

Inventory is building now because we have slightly more sellers each week. The market had about 49,000 new listings this week. 9,000 of those are already in contract. Leaving 40,000 new listings to add to the market which is about a 5% increase versus last year. 

The defining characteristic of the 2023 housing market was that sellers sat on the sidelines and waited. It sure feels like fewer are waiting now. You can start to see it when we chart the new listing volume each week all year long. The gray lines are previous years so you can see how many sellers we normally have. The light red line in this chart was lower than all previous years. Fewer sellers in 2023. However, by this last November the trend started easing just a bit. The bright red line started climbing over 2022. That continues into January.

It sure looks now like we’ll have more sellers each week all year long than we did in 2023. You can already see at the left end of the chart the dark red line is this year starting out higher. It also shows us we still have fewer sellers than we used to get. In recent years you could easily expect 50 or 60,000 weekly new listings as the new year started. But I don’t see any sign of reaching those old normal levels any time soon. What we’re observing is the market expanding just a bit. Especially if rates stay higher for longer, inventory will continue to build like this. 

Sales Rate

The other side of the equation to keep watch is the purchase side. I’ve called this a supply constrained market. So as the inventory shortage eases just a bit, we should also see more transactions happening. And sure enough, that’s what we’re seeing. There continue to be more new contracts each week than last year at this same time. The pace of home sales is growing. Not a ton, it’s not a boom. But the market is growing.

I’m fairly confident that these trends are durable for the season. This sales growth has been slow and consistent for several weeks now. But it is important to keep watch each week. Because if inventory is growing and the sales rates were declining, that would be a very different message the market is sending us. And we’re going to be vigilant for that trend right here.

In this chart the height of each bar is the total number of single family homes in contract in a given week. This week there are 251,000 single family homes in contract, that’s 5% more sales than last year at this time. 

The light portion of the bar are the new contracts for the given week. These are new purchase offers that now have contracts pending. New contracts also came in 5% more than the same week a year ago. 42,000 new contracts pending this week. The sales rate should pick up each week for several more months now with the spring home buying season. 

It’s a little risky to judge any single week as a trend, but maybe the sales growth momentum we’ve been seeing slowed a bit this week. Maybe? In last week’s video I shared that it looks like 15% home sales growth in 2024. So this week came in under than trajectory.

I wonder if people have been a little stalled waiting for mortgage rates to resume falling? The 30 year fixed mortgage rate is still around 6.7% which is stubbornly high and unchanged or even up a bit for the last month now. When I talk about my expectations for the year I base that on the assumption that rates stay roughly where they are now. If rates drop dramatically you’ll see these contracts pick up and inventory fall.

Price Reductions

Let’s move on to the price signals. Remember that in 2023 even though we had very few home sales, home prices inched up a bit nationwide. We’re looking at similar dynamics for 2024. When we look at the percentage of homes on the market that have taken a price cut from their original list price we can use that to help see where home sales prices will go for the full year. The leading indicator implies price stability or a little increase for the year.

Price reductions continue to decline with the new inventory after the first of the year. 
32.2% of the homes on the market have had a price reduction. That’s right in the middle of the normal range. And exactly how you’d expect a balanced real estate market to act in January. This implies slight home price strength in general for the next few months.  If rates fall from here into the 5s, watch demand pick up and we’ll immediately see fewer sellers need to cut their prices. 

In this chart every line is a year. You can see the normal curve, fewer price cuts in the spring with fresh inventory and the most buyers, and then later in the year price cuts accelerate. Last year in January the red line showed us that we had an improving market all the way to May. 

What we’re looking for here is any change in the current signals for home prices. If for example inventory climbs even more rapidly and demand doesn’t climb, we’ll see sellers feel it and they’ll cut their prices. As of right now, the signs for future home prices are reasonably solid. But that’s what we’re looking for.

Home Prices

And in fact, the median price of single family homes in the US is now just a hair under $420,000. Home prices ticked up almost half a percent this week. And the median price of single family homes in the US right now is 3% higher than last year at this time.  In this market where supply and demand is pretty balanced, home prices are not going to skyrocket of course and there is no sign of prices dropping either. As inventory grows, and sales rates grow, home prices are reliably ticking up each week as well. That trend hasn’t changed. 

The median price of the newly listed homes is $389,900. That corrected back down from last week’s big jump. There’s some noise after the new years holiday. We should see the bright red line bounce higher for the spring before peaking in May. In January I love to watch the slope of the bright red line. That’s each week the sellers and the listing agents telling us exactly what they see in their local markets. When demand is aggressive, like it was in January 2022 see how each week the sellers are pushing their asking prices a bit higher. The bright red line jumps quickly. Last year, demand was much more subdued and the price of the new listings after the first of the year didn’t grow nearly as quickly. Because the country is still faced with affordability challenges, it’s really hard to see any force that would push home prices dramatically higher. 

We should be grateful that the market is expanding with more supply and more sales for more people than in 2023. 

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