Why Aren't Home Prices Falling?

The U.S. housing market has boomed for years, with economic growth and cheap mortgages driving massive homebuyer demand - and rising prices - for more than a decade.

And for years, people have been asking me, “When will home prices fall? Homes are unaffordable, this can't be sustainable. Things have to get back in line. Don’t they?” 
 
But the fact is, we don’t see any evidence of this happening yet. Even with lower home sales, more expensive money, and inventory growing, home prices have remained fairly strong.

So for me, the question isn’t so much, "When will home prices fall?” but rather: “Why aren’t home prices falling?”

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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 September 23, 2024. Please refer to the video below for all the charts I mention in this transcript!

Home Prices

Let’s start with home prices today. The median price of the homes that went into contract this week jumped up to $389,900. That’s an increase of 1.6% for the week and are staying in the 3-5% appreciation range over last year.  It’s the second week in a row with an uptick in the price of the homes going into contract. I love this pending sales price as a proxy for future sales. These are the homes getting offers today. And the sales will close in a month or so down the road.

This price jump frankly surprised me a bit this week. It would be very normal for sales prices to decline sequentially in September. In June, July and August you can see this year’s dark line curving more steeply towards the prices paid over the last two years. 

It’s just two weeks of prices climbing and I try not to read too much into short moves like this. There’s always some bouncy noise in this series. But I think it is notable that these sales price measures haven’t bounded the other direction. We want to keep our eyes open for signs that consumers are responding to cheaper money. This could be where we see it. Even if purchase volume hasn’t picked up, maybe we can see it in the price point where people buy. 

So when I ask the question, “why aren’t home prices falling?” This is what we’re talking about. Home prices aren’t falling. Could they fall? You bet. Look at the light red line from 2022 here. Demand cratered in September 2022 and home prices dropped instantly. But that’s not happening now.

Meanwhile, the median price of all the listings in the active market is $445,000 which is basically unchanged from the last two weeks and is just fractionally above last year at this time. The price of the newly listed cohort this week is $410,000 which is 2.9% greater than a year ago. 

Why aren’t home prices falling? Home price appreciation is aiming for 0-3% for the year and it may be next year before we can measure price declines, or it could be that newly cheaper mortgage rates are creating a floor for prices.

Inventory

Inventory is still growing clearly across the country. We’ve seen two weeks in a row with over 10,000 unit gains. There are now 725,000 single family homes unsold on the market. That’s several percent more than I expected the year to top out at and we still have several weeks before inventory starts declining for the fall. 

We added 1.6% to the unsold inventory this week. That’s a pretty big jump for September. Last year we were adding closer to 2% per week but still, we haven’t seen the market really turn the corner for Autumn yet. Our model has the last week of October before we hit the absolute peak of inventory. There are 37% more homes on the market than a year ago. That’s shrinking a little bit each week because inventory was really climbing quickly a year ago. It now looks like we’ll end the year with about 27% more unsold inventory than the end of 2023. There’s 37% more homes unsold now, and it looks like we’ll end the year with 27% more unsold homes. 

In this view, the dark line of 2024 has ticked up strongly in the last two weeks. There are scenarios where this line keeps climbing into November, and I’ll talk about those in a moment.

And that leads us to the theme we’re exploring today. If supply is so much greater why haven’t home prices declined?

New Listings

There were 70,000 new listings unsold for single family homes this week. That’s a healthy number in the middle of September. In fact this is really the first time in three years that we’ve had a “normal” number of new listings. There were 70,000 single family homes listed unsold and another 10,000 immediate sales. That’s an increase of 7% more sellers than a week ago and 10% more than the same week a year ago.

80.000 sellers isn’t *a lot* a lot - it’s 10% more than last year we’ve averaged about 10% more sellers than 2023 all year long.  But in the era before the pandemic, seller volume was more seasonal. By mid-September, the number of new listings would be falling each week. See the gray lines peak in May and then decline very clearly through the second half of the year. Since 2020, the US real estate market has lost much of its seasonality. See this year’s dark line may be extending more horizontally late in the year. That shows *relatively* more sellers in the fall than there used to be. I don’t know if these seasonality changes are permanent - like do we just have supply and demand for housing spread more evenly through the year now? Or if late-year inventory climbs are just an artifact of a really slow market, but at least this week we saw inventory build as much as we did during a given week of May, June or July this year.  

Are there too many sellers?  When I say “too many” I mean will there be significantly more sellers than buyers - a big enough disparity - to create downward pressure on prices? Home prices haven’t fallen. But is this finally the trigger? It doesn’t feel like immediately too many. I don’t detect panic sellers, slashing prices. And I suspect that next week we’ll see this new listings number dip again, but if it doesn’t, this will be very important to watch. For example, does late year new listings volume reflect institutional investors ramping up unloading their inventory?  

If residential investors who have been net buyers for the last 12 years start to unload because returns are weak, then we might see this new listings line, the dark line here staying above the gray lines into the fourth quarter. If that happens, then we might start to see an answer to the home price question. Why haven’t home prices fallen? We haven’t had sufficient sellers yet. But we could be on the cusp of that transition. 

This year we have fewer and fewer immediate sales. We started reporting on the “immediate sales” phenomenon during the pandemic. At that time demand exploded, buyer competition was intense, there were all the bidding wars and the sight-unseen purchases. Immediate sales are a really insightful way to understand home buyer demand.

We’ve only tracked immediate sales since 2021, and there are fewer and fewer happening each week. If you’re a home buyer, you don’t feel any competitive pressure. Early in the year places like Boston had very tight inventory and still had bidding wars on the best properties. But inventory is finally building and buyers are watching rates drop so they don’t feel any urgency to make an offer. 

There were only 10,000 immediate sales for single family homes this week. That’s a couple percent more than a week ago, but 25% fewer than the same week last year. This week had half as many immediate sales as 2022. In the pandemic we were buying everything in sight, that carried momentum into 2022, surprisingly longer than I expected, but now is when it looks like that frenzy is finally fully gone. 

Pending Home Sales

The total number of homes in contract actually ticked up this week to 360,000. The weekly newly Pending count is up to 62,000. That’s up a percent from last week and about 4% more than a year ago. Home sales each week are still 10% fewer than two years ago. 

All year long I’ve been looking for signs that home sales might turn the corner. They have not. I’m still squinting at the dark line here to find any indication that buyers even care that mortgage rates are at their cheapest in over a year.  This week ticked up with more purchases. It’s encouraging that sales ticked up. I’m not ready to call it a trend yet. But these are the signals we’re watching for. 

Next week though I expect the new pendings chart here will be the data we highlight. Not because home sales are surging, but because we get the easy baseline comparisons to 2022 and 2023.  September 2022 was a real shock with continued mortgage rate jumps. Sales tanked at the end of September 2022. You can see that in the light red line here. So here’s a scenario to watch for next week: Do we have more sales at the end of September 2024 than we’ve had in two full years? Are we finally at the nadir of the home sales drought?  If we get another week of just a tiny marginal benefit that buyers take advantage of falling mortgage rates that’ll keep the dark line elevated and suddenly it’d show more home sales than each of the last two years. Even though there are still very few sales happening. Anyway, that's next week’s watch.

Price Reductions

39.9% of the homes on the market have taken a price cut from the original list price. That’s 20 basis points fewer than a week ago. When we seek to understand whether prices are falling or are about to fall, this price reductions gauge is very useful. 

The clearest signal from the price reductions chart is how weak pricing was in the fourth quarter of 2022 and 2023 and how this year looks different. When homes that are listed for sale don’t get their offers they have to cut their asking price. Price cuts really jumped when rates jumped each of the last two years. 

I started today talking about home prices. And we’ll finish here too. As a leading indicator of sales prices, we can probably see the impact of lower mortgage rates. Just a few more sellers get their offers, so the price reductions line isn’t climbing now. I expect this line to peak in November with the season but it’s important to note the recent behavior. 

The big trends from earlier in the year are shifting now. And that’s why we do this data work each week. If sellers finally change their expectations, we’ll see it in the data quickly. Maybe mortgage rates have finally turned the corner? For buyers and sellers, these conditions can change fast and it can be very impactful for smart decision making. They need to hear the data from you so they know how to act. You should join us at Altos.

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