Is it darkest before the dawn? If we look at the housing market data right now, things look the most bearish they've been all year. And yet, really good inflation data came in last week, the bond market rallied, and mortgage rates took a notable dip below 7% for the first time in months. Maybe we’re finally past the peak of mortgage rates? If so, how should we expect the housing market to react?
Inventory dipped on the week which included the long July 4 holiday weekend. Home prices and new listings dip too. This is totally normal for the long holiday weekend. The market is slow but doesn’t appear to be grinding to a halt. Contrast this week to 2022, when inventory rose by 3% in the holiday week. That was a notable change. Today is not in that market.
On the price side, it’s notable that last week had the first negative print on year over year price of the new listings. The newly listed homes for sale were priced 1% less than last year at this time. I’ll share more on that below.
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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 July 15, 2024. Please refer to the video below for all the charts I mention in this transcript!
There are currently 651,000 single family homes unsold on the market around the country. That’s actually just a fraction of a percent fewer than a week ago. As I mentioned, the July 4th holiday can do that. Inventory is 38.5% more than a year ago. Still 32% fewer homes on the market now unsold than in 2019. Inventory is growing in every state across the country. However, most of the US has still fewer homes for sale now than pre-pandemic. Only a few places, Florida, Texas, Oklahoma, Arkansas, and Idaho have more homes on the market now than the pre-pandemic levels of 2019.
The pattern to watch for in the second half of the year is whether inventory keeps rising like it did late last year or whether it plateaus like it normally would in the summer. In the chart here I’ve highlighted last year. You can see how inventory kept running all the way to November. That was because mortgage rates rose from June through November of last year to peak at 8% just after Thanksgiving. Rising rates creates rising inventory.
But look at 2022 which I’ve also highlighted here. In 2022, rising rates hit in the first half of the year. Rates plateaued by July. And so did inventory. But then in September 2022, rates jumped again unexpectedly. So inventory did a late year climb from September to November.
Finally look back at 2019 which I’ve highlighted here. See how in more “normal” times inventory would plateau now and start declining in the late summer.
So that’s what we’re asking now. Is this it for the inventory growth trend of the last 35 weeks? Or will inventory run more from here. Mortgage rates dipped nicely this week with the great inflation news. Are we finally past the peak of mortgage rates? If rates decline notably, maybe if they head below 6.75 to 6.5% then I expect demand to pick up quicker than supply so the inventory growth trend we’ve been tracking for months will reverse. We’ll see flat inventory in July and August. Just like 0-1% moves in a given week. Keep your eyes here.
Last week included the long holiday weekend so new listings are obviously down. Only 57,000 new listings unsold for single family homes this week with another 11,000 immediate sales. That’s a very small number of new listings that took offers and went into contract immediately. I like that “immediate sales” number as a gauge of organic levels of demand. The more people who are waiting to buy the right place, the more that jump on a deal when they see it. Only 16% of the listings were immediate sales this week. That’s super low and has been declining since May. The 68,000 total new listings is actually 6% fewer sellers than last year.
These numbers will rebound this coming week. You can see both red lines from the last couple years in this chart of the new listings. You can also see that we’re past the peak of new listings. Sellers peak at the end of June. The question for the rest of the year is do the sellers stay ultra restricted like last year, or do they continue a little growth like the first half of this year?
What we’re seeing now, with 6% fewer sellers than a year ago, it feels like sellers are pulling back now and that will keep a lid on inventory growth for the rest of the year. No big surge of new listings are coming. But that also keeps a lid on total sales volume. You can buy what’s not for sale.
If we’re past the peak of mortgage rates and demand picks up, the total number of new listings each week won’t pick up much but the percentage that are sold immediately will. 16% of the new listings were sold immediately this week. If we do see demand improve in the second half of the year, one place to see it would be immediate sales climbing back to 20% or more.
Sales are down the holiday weekend too of course. 58,000 new contracts this week is just about the same level as the last two years over the holiday.
Here’s what’s interesting about the sales rate, as measured by the weekly new pendings in this view. In 2022, you can see a dramatic drop off in the new pendings volume after the end of June. That’s the light red line here. That sales rate hasn’t recovered for 24 months now. You can see further declines when rates jumped unexpectedly in September 2022 also.
There are 382,000 total single family homes in contract now. That’s unchanged from last week and just 1% more than a year ago. Not seeing any sales growth.
What I’m looking for in the pendings data, if rates fall in the rest of July and August for example - then we should see the new pendings pick up from 65,000 each week to about 70,000 each week. That would be a slight lift in sales, maybe 8%, if mortgage rates dip below 6.75 and stay there.
In this chart the light red line is from late 2022, when the market slowed after July 4, the red line is last year when it was super slow. This year started out with momentum, but that’s been pretty much lost. If money gets cheaper, then it'll be interesting to see how quickly these sales numbers show it.
I should point out that we are seeing an increase in the withdrawals right now too. We can track homes that were listed, and are now pulled but not in contract. So these are discouraged sellers who don’t have to sell. That’s keeping a lid on inventory growth too.
The median price of all the listings is $450,000 now. That’s down 1% from last week and unchanged from a year ago.
The median price of the new listings is $404,900 this week. That’s a big drop for the week, again it’s the holiday. And by this measure, tracking all the new listings in a given week, the prices came in below the same week a year ago. 1% lower.
As I mentioned, that’s the first negative print on the price of New Listings for over a year. Now, this is one week, it’s a holiday week, prices will jump next week probably. Keep all those caveats in mind. There is always a bit of noise in this measure the price of the new listings. That all being said, it is notable that the noise didn’t push the other direction. The price of the New Listings has been running about 3% more than a year ago. That’s compressing as the year goes on and demand wanes with higher mortgage rates. Having one negative print is part of that compression.
The median price of the newly pending contracts is $393,000 across the country this week. That’s down 1.5% for the week. Prices always notch down after the holiday. These pending contracts are the proxy for what’s selling. These are homes that are not yet sold, but they’re the ones that started the sales process this week. These prices are running 3.1% more expensive than a year ago. Just like on the listing side, that spread is compressing. It was in the 4-5% YoY range for most of the year. In the coming months, home prices will generally decline since we’re past the peak buying season. We’ll keep watching for this compression too. As I’ve said a lot in recent weeks, I expect that compression to continue so we end the year in the 0-3% range.
If we’re past the peak of mortgage rates, and demand picks up, it’s not clear to me how quickly we’ll see the spread increase again. But we’ll watch for it, because that is a potential outcome.
One of the reasons I continue to expect home price appreciation to decelerate is this price reductions leading indicator. 38.3% of the nation’s listings have taken a price cut from the original list price. As you can see in this chart, that’s more price cuts than any recent July.
The curve here seems like it’s slowing a bit as the summer grows later. There was only a 30 basis point increase in this metric for the week.
Again, so much of the nuance moves reflect consumers reacting to changes in mortgage rates. If we get lucky and mortgage rates ease from here on out for the rest of the year, then one place we’ll measure a rebound in demand will be fewer price cuts. When you list your home, if you don’t get the offers, you cut your price. But when a few more offers are made by newly affordably mortgages for buyers, then this stat will plateau and even tick down.
In the last two Septembers 2022 and 2023 we saw big jumps in mortgage rates that made home buyers back off and we could see jumps in price reductions at that time. So each of the last two years had sharply rising rates at the end of the year. And a subsequent boost in price cuts.
Those two jumps in price cuts happened pretty much to the day of the mortgage spikes. Very closely aligned. So that’s why we’re watching now too.
And that’s why we do this data work each week. Homebuyers are obviously sensitive to the cost of money. And mortgage rates stayed higher for longer than anyone anticipated this year. It’s not clear that we’ve yet turned the corner. But maybe? If we’re lucky? For your buyers and sellers, these conditions change fast. They need to hear the data from you. You should join us at Altos.
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