We're two months into the new year, and even while we’ve been reporting surprisingly resilient home buying activity so far this year, it’s not nearly enough demand to change our view that home prices will be flat to slightly down for the year nationally. As the pricing data for 2023 becomes more mature, we can now start to see how quickly last year’s prices will catch up with this year’s.
Inventory is falling still, so the supply side of the supply/demand equation helps put a floor on prices. There are just so few homes for sale that this market will likely remain tight all year. Rising mortgage rates don’t appear to be adding much to inventory, but they are keeping prices lower. This is an affordability issue.
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I’m Mike Simonsen, I’m the founder of Altos Research. Here’s the latest data for the second full week of February.
The trend in home prices is probably the most notable thing in the data right now. At $420,000 home prices are still up nationally over last year at this time. All that margin was gained in March April and May.
There are lots of markets where home prices are lower than last year at this time. And a few markets like San Francisco where prices are lower than two years ago. But in general across the country, home prices are still up about 6% higher than last year. At that time, prices were still sprinting higher each week as buyers fought to get in before mortgage rates jumped. So now, each week our yearly price gain is eroding.
The median price of single family homes in the US right now is $420,320. That’s up a tiny fraction from last week. Normally this time of year home prices are bumping up rapidly each week with new inventory and more buyer demand. It seems like we’re at a price ceiling. Buyers are buying some homes, but we can really see the mortgage rate affordability problem keep that lid on prices. Prices will tick up through June but much slower than recent years. At this pace we’ll peak significantly under the peak price of last June.
The median price of the new listings is $399,000 and that’s already the same level from last year at this time. New sellers know where the demand is and in aggregate price very close to the eventual sales price. So 0% year over year gains. That tells us a ton for the year. Next week might be negative for the first time, because last year prices were still spiking so quickly.
It’s notable too that the median price of the pendings is $370,000 which is also unchanged from last year at this time. The pendings are the homes in contract but not yet closed. Last year’s pending sales price is a little understated because we still had overbidding happening. So when these pendings close sales, the prices will be at or below last years sales prices. The homes that are pending contract now will close in March and April. So be ready for those headlines in the next few months. Home sales prices will be down year over year.
Sales prices are a lagging indicator of the market though. A home gets listed today, gets an offer in March, it closes in April or May and then you hear than data in June. So while we can see that the sales price headlines will start reporting flat to down in a few months, I prefer to focus on what’s happing in the market right now.
And the big thing to note right now is that available inventory of homes for sale declined by another 1.5% this week to just under 430,000. There is no indication anywhere in the data that we have a flood of new inventory coming. You can hear plenty of hypotheses about where future inventory might come from, but none of that is in the market now. So while home prices are down, there’s no supply-side catalyst for a big bubble burst correction.
There are 60,000 fewer single family homes on the market now than there were over the New Years weekend. Coming out of the 4th Quarter we expected a continuation of the market freeze which would mean rising inventory in the first quarter. Our forecasting model from that moment expected we’d have well over 500,000 single family homes available right now. Each week we’ve been surprising to the downside. Fewer new sellers and slightly more buyers.
There are a lot more homes on the market now of course than last year at this time, but 48% fewer homes are for sale right now than in 2019 when there were 821,000 single family homes on the market.
I expect inventory to fall for one more week before a slight increase as we approach mid March. Spring inventory is coming. We have not seen a meaningful surge in inventory even as mortgage rates surged a few weeks ago. We also haven’t seen a dramatic slowdown in buyers enough to reverse the 2023 trend.
We continue to have significantly fewer new listings each week than we did even a year ago. Only 60,000 new listings of single family homes this week, with 14,000 of those going into contract immediately. Last year there were 73,000 new listings with 24,000 of them going into contract immediately.
In this chart each bar is a week with the total count of new listings. You can see this week’s bar is much shorter than last year at this time. 18% fewer new listings. The light portion of the bar are those that went into contract essentially immediately after listing. This is what I mean when I say there’s no sign of any surge in inventory. The folks who are the most bearish on the US housing market insist that we will see a big surge in inventory. That hasn’t happened yet. When it does we’ll see it here first.
At the right end of the chart you can see the new listing rate is still very suppressed. Hopefully in the next couple weeks we’ll see some March inventory to help the market. Last March you can see some big spike weeks climbing to peak at the end of June.
There are some markets like Austin and Phoenix where inventory climbed dramatically last summer. So in those market the current available inventory is around where it was in 2019 before the pandemic. Most of the country is at pandemic lows with inventory. But interestingly even in those markets, right now the new listing volume is very low. Those markets are not growing inventory now like they did last year. If you’re latching onto reports that cite rising inventory as a sign of a market crash, you’re probably misinformed. You’re looking at old data.
There are 319,000 single family homes in contract pending stage. That’s a 4% increase from last week. But of course 21% fewer than last year at this time. 21% fewer sales is a huge difference.
This week continues the trend of a normal seasonal climb with enough people buying the limited houses for sale that we see an obvious turnaround from the weak second half of last year.
There were 59,000 newly pending this week. We can’t see an obvious slowdown of new pendings as mortgage rates pushed higher over the last several weeks. Even though mortgage purchase applications have taken a dive. It could be that we have such low levels of inventory that even in a time when demand falls, this is still a supply constrained market. Or maybe it will take more time before we we can really start measuring 7% mortgage rates in the pendings numbers.
We thought maybe we have seen some sign in last week’s numbers, but it’s not there this week. We know that with mortgage rates close to 7% we’re not going to see a surge in people rushing to buy. The sales rate will stay well below last year’s pace.
And if there’s no rush to buy, then those homes that sit on the market may need a price cut. As we’ve had surprising levels of demand this new year, price reductions have been falling quickly. Fewer homes need a price cut. That pace leveled off this week. 31.1% of the homes on the market have taken a price cut. You can imagine if a handful of homes watched rates spike, and noticed that none of their potential bidders made an offer, that some of those folks cut their prices this week. So the price reductions curve is reaching its bottom as rate climb.
Since this year’s curve is above the recent years, price reductions are another indicator that the market is significantly less scary than late last year, but significantly slower than we’ve seen it in recent years.
This is of course national data and the local markets are behaving very differently from each other right now. If you need to get your local data to your buyers and sellers right now, you should join us at Altos Research. Go to AltosResearch.com and book time with our team to learn how to interpret the market signals for the people who need it most right now. They need you to be the expert for them.
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