What’s in store for the spring home buying market?

By now, seeing inventory fall every week is no longer a surprise... even though it’s March, when we’d normally expect inventory to be increasing each week as the peak home buying season is almost upon us. But this year, sellers are holding back.

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I’m Mike Simonsen, I’m the founder of Altos Research. Here’s the latest data as we roll into mid-March.

Inventory continues to fall

Available inventory of single family homes for sale in the US dropped by another 1.5% this week to only 412,000. Last year by mid-March, we saw a steep increase in inventory off the crazy record lows, as demand slowed way down after February and inventory finally started to build. 

This year’s inventory decline isn’t really about buyer demand, though - it’s about sellers. As I mentioned there are no reasons for anyone to be selling their house right now. So while we have 66% more homes on the market now than last year, that margin is shrinking.

In 2019 before the pandemic times, there were 812,000 homes on the market. We have half that many now. It now looks like we have a few more weeks of declines likely, maybe down 1% then a half percent before turning flat and finally climbing in April. 

We’re now looking at scenarios where inventory ends 2023 with only 500,000 homes on the market. And since one way to project future price changes is to look at YoY inventory change, that would imply while we can see home prices will be flat to down for 2023 over 2022, next year prices would climb. That scenario would be based on supply remaining to the restricted path it’s currently on. In other words. if inventory doesn’t start rising soon for the year, supply remains restricted and you can see how a floor forms for prices in the future.

Each week we have about 20% fewer new listings than last year at this time. 20% fewer sellers each week. The total number of home sales this year will remain low because we have such a supply constrained market. 

Immediate sales tick up

Interestingly, the percentage of new listings that went into contract (more or less) immediately has climbed to 29%. Immediate sales are those new listings that hit the market and take offers essentially immediately after listing and go into contract within a couple days - they bypass the active market and go straight to pending. During the pandemic years, the immediate sales were the defining characteristic of the market. Late last year those immediate sales didn’t happen and inventory built up. But now we see that some buyers are chasing the very few great new opportunities, and so immediate sales are climbing again this spring. You can see the total number of new listings is dramatically fewer now than last year at this time. But it is climbing a bit for the spring finally.

Home prices inch up

The housing bubble predictors on the internet hate it when I point this out, but there is no sign of any big surge of inventory anywhere in the country. This implies that even at higher mortgage rates, homes prices are not declining dramatically from here. The supply side of the supply/demand ratio just seems too small.

And indeed we can see that prices when compared to each week are inching up. The median home price in the US is $428,000 this week. Compared to a year ago, home prices are flat to down a little bit depending on how you measure. Last year home prices were still climbing very quickly each week with the last gasps of demand for cheap mortgages. This year prices are rising because it’s spring, but they’re rising at a much less steep climb each week, so the year over year comparisons get lower. 

These are all signals we’ve been talking about for a long time. Like inventory, there are no signs anywhere in the data that home prices are declining quickly or that sellers are panicking or that buyers are on strike. Last year was nuts, so the year over year comparisons are down. Home prices for example as measured by the new listings each week are down from last year. The median price of the new listings this week is $399,900, which is just a fraction lower across the country than last year.

We can see that buyers are price sensitive. And that’s probably the big difference between 6.5% mortgage rates and 3% rates. At 3% I can overbid and my payments don’t change much. At 6 or 7% I’m very sensitive to each additional dollar of cost. This tells us that while we have low supply and moderate demand this year, home prices don’t have upside risk. They’re not jumping from here. Demand is at the price points we’re already at. We already know what the headlines will say for the rest of the year. 

Pending sales holding steady

The count of homes pending contract was basically flat week over week. There are 323,000 single family homes in the pending stage now. That’s 22% fewer than last year. That’s a lot fewer sales to be completed in the coming months. But it’s an improvement over the fall.

With 64,000 new contracts this week, that’s the light red portion of the bar, we had slightly fewer this week than last. There’s always a little week to week volatility so one week is not a trend.  But here's what I’m looking for in the pendings: gradually more pendings over the next 14-15 weeks. 2023 will have significantly fewer sales than the past few years, but seeing single family home contracts climbing to 80k or so each week would be much more healthy than the second half of last year.  

If economic conditions, recession, job losses, inflation, bank runs, if that kind of uncertainty slows home buyers more than they’ve already slowed, you’ll see this pendings chart struggle to grow to its July 1 peak. You’ll see that coupled with inventory growing each week. We saw this pattern last summer. The light portion of the bar the new pendings was shrinking rapidly each week while inventory was climbing. So keep your eyes open for that.

Fewer houses have price reductions

If we have that kind of market slowdown later in 2023, then we’ll also see a steeper climb in the price reductions data. Because there are so few homes on the market, the good ones are going quickly, and we have moderate levels of buyer demand, the percent of homes on the market that have taken a price cut is down again this week to just over 30%.

That’s frankly a lot fewer than I’d expected we’d have now, but it’s in a totally normal range. This tells us that future transactions do not have significant downward price pressure. In other words, if my house is on the market now, and there are no buyers at this price, I take a price cut. So the transaction in the future would be at a lower price. This also tells us that when we talk about how home prices overall are flat to down from last year, the bulk of those price declines happened in July through October, when price reductions were skyrocketing. So the sales that are completing now are lower than where they were a year ago.

But the stuff that’s on the market now at this price, doesn’t have pressure to price lower in the future. Again this is another signal that while the home price headlines will be negative for several months, we have visibility beyond that where they won’t keep falling. House is on the market now, takes an offer in April, it closes in May or June and those headlines start coming out in July. 

This is of course national data, and 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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