The pandemic real estate market continues to surprise

It’s exactly two years since the onset of the pandemic. Interest rates are at their highest levels in three years. But buyers aren’t backing off. Two years in and the post-pandemic real estate market continues to surprise me. Let’s take a look at this week’s data and see the latest.

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. I’m Mike Simonsen, I’m the CEO of Altos Research. Let’s look at the data and see the details for the week of March 21 2022.

Available Real Estate Inventory

Available inventory of unsold single family homes in the US is basically unchanged from last week at 248,000 homes. That’s actually down just a smidge, and largely due to delayed new construction. We could have a few weeks bumping along the bottom before inventory starts climbing reliably for the summer. In “normal” times, inventory would be climbing very obviously by mid-March. Even in those weeks just prior to the pandemic, when you could see it coming but official lock-downs weren’t in place yet.

In 2020 available inventory was 738,000 homes, 3 times the number that are available now. In 2019 we were still dealing from the after effects of rising rates of the year prior and inventory was at 827,000. So the week over week inventory increase we start seeing now is seasonal, better than last year, but shows no signs yet of any impact of rising rates.

Assuming rates continue to rise to say, 4.5% we should see the impact on inventory much later in the year. Second half of the year. We appear to be turning the corner now, so that’s already an improvement over last year as the market slows with more expensive money as it has in previous years.

Rising Interest Rates

If you are testing the hypothesis that rising rates will be the pin prick to burst a housing bubble, we think that’s very unlikely. The important point is that existing home owners are locked in at 3% or lower. Rising rates don’t make their loans worse. If anything those loans are more precious to hold onto. So you sell fewer and you certainly do let a property go into foreclosure. So rising rates don’t create a flood of new inventory. Rising rates cool new buyer demand a touch. But even here new buyers are driven more by demographics than by rates, so maybe a touch more inventory from decreased new buyer demand. The third area is with investors and this is the main driver for any inventory increase we might see later this year. Americans have moved 8 million homes from resale into rental investment properties over the last decade.

One way they do that is by doubling up. You upsize or downsize your home, you keep the first one for an investment when you move into the second one. When rates are 3% that is a very affordable deal. When they’re 4.5% that’s less attractive. So fewer people do that doubling up and they list their first one for sale when they move. Therefore inventory rises.

We saw exactly that trend in 2018. 2018 is the only year in the decade when investors didn’t remove active inventory and we had a slight inventory increase. So this is our model for how 2022 might look with steadily rising rates. Back end of the year has inventory increases compared to last year. But there are no signals for major inventory shift. Down the road, if the cost of money is far higher and we stall from the massive economic growth currently to a recession, you could imagine that some rental deals look less attractive and that further adds to inventory, but those trends are a year out at the earliest. Plenty to happen between now and then.

Real Estate Prices

On to prices. The median home price each week inches closer to a new record at $400,000. The price of the new listings is just $1 shy at $399,999. There are always a cluster of properties just below the big threshold so the median hits a plateau. Seems like next week median home price will be at $399,999 and somewhere in the following weeks we’ll set a new record home price in the US.

This week two years ago was the last week before the pandemic lockdowns stalled the market. Prices adjusted down for three weeks and then took two more weeks to climb back above their previous highs.

We started these videos back then on the assumption that the market would tank and we wanted people to know precisely what was happening as it happened. It turned out we were wildly wrong, and the market launched on a major demand run. Interesting to note that at that time the economic stimulus that eventually came was totally unknown. This demand was not driven because the fed was helicoptering money in.

These were buyers buying at the exact same time that the economy was plunged into deep recession with millions of jobs lost. I think about this reality when I consider what might be the fate of the housing market if next year our incredible job and wage gains finally slow down. It is possible that housing because of the strong demographics is counter-cyclical to the business cycle this time around. Wouldn’t that be surprising. We’ll see.

Immediate Real Estate Sales Tracker

Demand wise our immediate sales tracker is staying strong. 31% of the new listings went into contract essentially immediately. 81,000 single family homes hit the market and 25,000 of those got offers and went pending before the week was out. Slightly fewer than last week but obviously trending up for the spring. New listings volume peaks at the end of June. We like the snow to melt and school to end. But I can imagine that if you’re advising sellers right now, they could be facing slightly more competition later in the year, if you follow our inventory model, so earlier seems more likely to be better rather than delaying sales.

Time on Market

Finally today a quick check on market time. We’re down to 28 days median for all the homes on the market. There are very few that have sat around for long, even the wacky ones that are typically hard to sell have moved so we’re left with the fast turnover. Market time will accelerate for a couple more months until we cross into later summer. Normally in mid March a home might expect to be on the market for 2.5 months, right now only 28 days. No signs of slowing there at all yet. But we’ll keep watching for changes.

Ok that’s all the data we have time for this week. We have a new Top of Mind podcast this week diving into the latest technology changes around the real estate transaction and what that means for home buyers and sellers over the next few years. We talk about the use of crypto in real estate. So if you’re interested in how Bitcoin and blockchain are actually impacting the transaction right now tune into this one. Great insights.

As always - this market is nuts, and your clients need to know what’s going on. If you need your clients to not be afraid, you need to get your Altos data to them. Go to AltosResearch.com right now and get a local market consultation your local data to your clients today.

Alright everybody, thank you. More next week.