Unprecedented housing inventory gains for late October

It’s late October and available inventory of homes on the market is still climbing each week. With mortgage rates over 7 or even 7.5% right now, it’s not hard to imagine why the market has ground to a halt. Usually by this time of the year, we have fewer new listings and some sales still wrapping up from the summer. Inventory falls. But not this year. There is so little buyer action that even with 20% fewer new supply hitting the market each week than normal, we still have inventory climbing. 

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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 October 24, 2022.

Real Estate Inventory

There are now 572,000 single family homes on the market, an increase of 1% over last week. In August way back when rates were closer to 5%, inventory had peaked and started trending down for the year. Then suddenly in September rates spiked. A move from 5% to 7.5% in a couple months is so shocking there is no precedent in the data.

Regionally, the biggest inventory gains are in Texas and Arizona and Georgia. Texas looks particularly bad. The number of single family homes on the market in Texas has climbed 10% since the beginning of September when the latest rates super spike started.

Real Estate Inventory Forecast

Here’s the latest projection for where we’ll end the year. The dark red line is this year with the dots each week for the rest of the year. Modeling inventory kind of breaks down now, because inventory never grows this late in the year. There are no inputs to the model that have inventory growing now. But here we are, inventory is growing. And because inventory grew by a full 1% this week it’s not even flat yet. So we have to expect that it’ll keep growing for a few more weeks. By Thanksgiving, I gotta imagine that we’ll have stale listings withdrawn and very few new listings so the active inventory must drop in November, right? I mean at this point who knows. You can understand why the model here shows that. 

You can see pretty clearly the inflection point when rates spiked from 5.5 to over 6% during the first week of September. And rates are significantly higher than that now. You can also see the dotted line expects inventory to fall through the end of the year. Like I said there are no precedents for inventory to keep rising this late in the year.  But even then we’re looking at probably 510,000 single family homes on the market. Each week that the actuals come in higher than the model, this will inch upward. Maybe I’m naive but it’s still hard for me to imagine significantly more than this by the end of the year. But as always we’ll keep watching.

Here’s another way to look at these inventory and sales volume trends. Even as active unsold inventory rose by 1% this week, the number of homes in contract, “pendings” we call them, fell by over 2%. These are sales being completed that started a month or two ago. But some of these are contracts that are failing, people walking away from deals. In this chart the dark red bars are the count of pendings each week. The light red bar is the unsold inventory count. You can see in the crazy past couple years there were more homes pending contract than actually available on the market. When rates were 3%, Americans were buying everything in sight. Now very few new pendings each week. A third fewer than last year at this time. Very few homes are getting offers and selling right now. 340,000 single family homes are in contract, with 54,000 new this week. Last year at this time almost 80,000 single family homes went into contract each week.

Home Prices

You can see prices ticking back each week too. The median price of single family homes in the US is now $429,000. I’ve mentioned previously that we should expect this number to finish the year closer to $400k. It’s the first few weeks in January that’ll be the most telling. If we start the year with rates in this same range 7-8% then the normal price increases at the start of the year won’t materialize. That’s looking bearish for home prices for the whole year 2023. When rates had settled in around 5 or 5.5% we could see buyers and price support, It’s hard to imagine that at 7-8%. I’ve said before at Altos Research we don’t forecast rates, we only measure the housing market as buyers and sellers react to the macro environment. And we can see that we’re so far above the buyer’s 5.5% threshold, we’re now in a place where the macro variables would have to turn dramatically better for home prices to stay even flat in 2023. That’s what we’ll keep our eyes on each week. 

Home Price Reductions

Price reductions are up too and showing no signs of topping yet. In this chart you can see the September 1 inflection point also. Price cuts had slowed in August and then promptly with the latest rate super spike, demand froze and price cuts resumed. This week 42.5% of the market has had a price cut. You can see the dark red line is still trending up, while the other lines this time of the year start to decline. Each line is a year. This is setting up Q1 to be weak for prices. Normally in Q1, prices climb for the new buying season, but the demand we can see now sure looks like that’s not going to be the case.

These local dynamics are why if you need to help buyers and sellers understand what’s happening in the market right now, I encourage you to go to AltosResearch.com and book time with our team for a free local consultation. People desperately need to understand what’s actually happening in the market and they need you to help them make the right decisions.

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Thanks, and see you next week.