What’s behind the surprising drop in inventory?

Two weeks in a row of declining inventory of homes for sale in the US. Each week available inventory is falling faster than our forecasting model anticipated. There are fewer homes for sale than anyone imagined even a few weeks ago. So even as mortgage rates have spiked, and payments are more expensive, which has led buyers to sit on the sidelines, so are sellers sitting on the sidelines.

We still have a critical shortage of homes for sale in this country and it no longer appears that is going to change any time soon. The data keeps surprising me each week and that’s frankly why we do this work, so we can measure what’s happening as it happens.

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. If you aren’t using Altos market reports with your clients, your buyers and sellers, now might be the time to step up. Go to AltosResearch.com and book a free consult with our team. Because everyone is worried about what’s happening right now. They need you to help them see clearly. 

I’m Mike Simonsen, I’m the CEO of Altos Research. Took a week off last week for the last vacation of the summer, and here’s what we’re looking at for the week of September 12, 2022.

Real Estate Inventory

Inventory of single family homes on the market fell by 1% this week to 547,000. Not that long ago in July as we were still feeling the shift in the market, where buyers got the message sooner than sellers and inventory was building quickly, we were anticipating that by this stage in the summer we’d have 600 or 650,000 single family homes on the market. But it turns out we were wrong. Home sellers are not materializing. And it now doesn’t appear that they’re going to. Each week the data is reinforcing this observation.

Just a few years ago in 2019, the real estate market was healthy and functioning. We had nearly a million homes on the market. We have fewer homes on the market now than we did early in the pandemic when home buyers were starting to go crazy with the low interest rates. Last year we had only 430,000 single family homes on the market at this time. We were in our peak frenzy. So this year inventory levels tried to normalize, but ended up far from normal.

Immediate Sales

You can see the dramatic deceleration in new listings in our immediate sales tracker. Each week as homes get listed for sale, during the pandemic a huge number of them went into contract essentially immediately. Now as the new listings volume dries up to critically low levels, about 25% fewer than we’d expect this time of year, some of those are still going into contract quickly. 

I spoke with an investor last week. They were flying to a few areas around Florida with plenty of cash, shopping for an investment property. They’re ready to offer quickly when the right deal shows up. These are long term investors with a small portfolio of homes around the country. They’re expecting to get bargains from sellers who are hurting, but they’re not particularly afraid for themselves. 

I pointed out to him that sellers aren’t hurting. Immediate sales are finally evaporating fewer and fewer each week, but you can also see that the total homes being listed for sale is shrinking dramatically each week.

Real Estate Inventory Forecast

And that leads us to the inventory forecast for the rest of the year. The forecast currently assumes much slower sales rates. It declines slowly from here on out. The model has been over estimating expected inventory levels each week since July. 

Every week we end up with fewer homes for sale than I expected just one week before. So, because I’ve been so consistently wrong, you could imagine that this forecast is probably still too high. In July we expected to peak at 625,000 homes on the market right now, and there are only 547,000. At that time we expected to end the year at 535,000 homes on the market, now we’re looking 470,000 but you can easily see how it could be 450,000 and maybe as few as 430,000. 

We’ve been consistently too high so 470k feels too high. The real question right now is whether we end 2022 with fewer homes on the market than in 2020 in the middle of the pandemic.

Next week September 20, Tuesday at 10am Pacific we’ll host our monthly webinar where we’ll dive more deeply into the forecast and will have revised each weekly calculation through the end of the year. This is frankly kind of shocking data to me each week. And it has big implications for buyers and sellers. We’re going to start 2023 still in our crisis shortage of homes available. We’ll look at how new construction might help lift us out of this hole. And we’ll look at what buyers and sellers need to know right now. If you need to communicate with your buyers and sellers now or prepare them for the spring, you should join us. These webinars are limited to 1000 attendees each month and we have far more than that interested in joining so register now to reserve your space. That’s next Tuesday September 20 at 10am pacific. 

Home Prices

Home prices meanwhile are definitely easing back this fall. This is mostly normal seasonal behavior. The median price of single family homes in the US is $439,900 right now that’s down a fraction from last week. While the price of the newly listed homes is at $389,000 that’s unchanged from last week. 

But sellers know if they want their house to get attention, they have to price properly. There is a notable discount from earlier in the year. Again, a lot of this is normal season. If you want to sell your house in the fall, you price a little discount compared to the spring when we have the most buyer demand.

The pandemic was most notable in how the third and fourth quarters of each of the last two years. There wasn't really a pricing pullback. Buyer demand kept up super late into the year. This year new sellers each week know the demand is far fewer and we can really see the price pullback. Home prices will take a big dip for the holidays in November and December. Then we get to watch in January to see where the market equilibrium lands.

Home Price Reductions

Homes on the market with price reductions meanwhile is unchanged from last week at 40.1% of the market. 40% of the single family homes on the market have taken a price cut from their original list price. Overall the percentage with price reductions shows how this market is not tanking. It’s not tanking because there simply are so few homes on the market. Supply is just too low. 

We could have a few more weeks with more price cuts. But this looks like we’re at the seasonal plateau. Price cuts fall late in the year as homes that haven’t sold are withdrawn from the market, further shrinking supply. If price cuts were shooting higher still now, that would imply a worsening housing market and we’re just not seeing it.

Boise has been the market with the most price reductions: over 60%, but it looks like Boise has plateaued, perhaps not getting worse from here. Austin and the Florida markets are still slowing so we’ll keep watch on those. We’ll spend more time on the local markets in the webinar next week so you can communicate what’s happening in different parts of the country. Again that’s Tuesday September 20.

The fact is this wild real estate market is puzzling everyone. The only thing we can do is watch the data and learn as quickly as possible where supply and demand leads us. If you have buyers and sellers looking for guidance right now, make sure you get them the data so they can see for themselves what is happening in your local market. Even in those most hard hit markets, we maybe can see the slide slowing. Your buyers and seller need to know that. Go to AltosResearch.com and sign up so you can get the data in your hands and in your clients hands today. 

That’s all the data for this week. Back next Monday. See you then.