Why home prices will continue to rise even with higher mortgage rates

Mortgage rates keep spiking, but there have been so many Americans lined up to buy homes, that increased costs haven’t deterred any demand. Do we have any signs that they might slow? Our record low inventory fell again this week, but only a couple thousand homes so maybe those are tiny little signals? 

Each 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. Traditional real estate data is released monthly, so by the time it gets to you it’s kinda old news. The news right now is that home prices are still surging and the effects of higher mortgage rates have not set in yet. Even though we expect them to at some point. I’m Mike Simonsen, I’m the CEO of Altos Research. Let’s look at the data and see the details for the week of February 21 2022.

The median home price in the US rose half a percent this week to $382,000. Week over week home price increases like this in February are absolutely to be expected even in a market that is facing these new headwinds from rising mortgage rates. The median home price normally will rise every week until June. The first and second quarters are when the best inventory gets listed and the most buyers are shopping. You can see the dark red line each annual cycle and how early we are in the upslope part of the annual curve. Last year at this time we were at $349,000 with huge appreciation still to come. This year has plenty of price appreciation from here. You can see why we’re on track to have another 10%+ home price growth year in 2022.

I mentioned last week how the price of the new listings jumped above the price of the whole market for the first time ever. As new listings hit the market they use all the local information to set their asking price. Because of the velocity of sales that happen at lower price points, the higher priced homes stay on the market longer, the trend line for the price of the new listings stays below the whole market. Last week though for the first time ever in our data the new listings just above the whole market. That’s very very bullish.

That new listings price trend is much more noisy week to week bounces around and starts to turn sideways usually by March. The big spikes in January and February and the climb slows usually in March and April. This is why it’s one way the annual price increases are already baked into the data in the first quarter. This week last year was when the new listings price growth flattened a bit. Same happening now. The Median Price of the New Listings is $385,000, down a fraction from last week but still above the whole market. This tells us that sellers right now have a ton of buyers. They’re pricing strong and this means the future sales prices will be elevated. House gets listed today, gets an offer in March, it closes in April and you start hearing about those transactions in May. So what we’re looking at here is strength in the May reported sales numbers. Even if mortgage rates slam the breaks on the market soon - we already have visibility on home sales prices through mid-year. 

Available inventory of unsold single family homes fell by less than one percent this week to 248,000. Each week brings us a new record low in available inventory. When people ask what impact will rising rates have on the market this year, inventory rather than price is where we project it.

We’re forecasting Q4 2022 to have slightly more available inventory than 2021. Weekly decreases have slowed so inventory can build in March, April, May, June. Last year was the anomaly when inventory didn’t hit bottom until April 30. Up to this point this year it has been looking like we’re on track for repeat of last year.

But this week’s inventory decline was only 2000 properties. Maybe we’re turning the corner? It’s only one datapoint so we’ll see how next week looks. Inventory peak last summer was just 437,000 homes on the market. So if rates continue their increase you could imagine we get to maybe 500,000 at the peak this year? That would feel significantly different but still be near record lows. And therefore not pulling down prices at all. There just aren’t any signals about a lot of inventory becoming available. Hopefully a little more.

End of February is also the time of year when we have the fewest price reductions. Most of the inventory is new and hasn’t had to take a price cut yet. Usually in March some sellers are surprised their homes haven’t moved yet so price reductions start ticking up. Last year the market accelerated all the way through April so price reductions didn’t start climbing until June. As of right now there are only 17.7% of the active homes who have taken a price cut. That’s fewer in fact than last year by a smidge. Normally this time of year you’d have 25% who needed to take a price cut. You can see in 2019 after that year of rising mortgage rates, price reductions were at 27%. We haven’t had a bear market in residential real estate in over a decade, but this is one stat where we’ll watch how quickly and how steeply demand slows as money gets more expensive. 

We’ve been watching the immediate sales phenomenon very closely and this week there is still no sign of buyers backing off. I suspect that there have been so many buyers waiting for a year to find their home that even as rates rise, maybe we go from 20 bidders to 10 to 5 but the house will still go into contract immediately. So our immediate sales will take a few weeks to report any adjustment. It’s when there are no immediate offers, the house takes more than a week, heaven forbid, to sell. Of the 72,000 new listings that hit the market this week 22,000 of them went into contract essentially immediately. No signs of demand slowing in the immediate sale tracker yet.

And in fact, the time to sell a home is faster than last year and dropping rapidly. Median days on market is already down to just 40 or so days. Last year it was still 60 because there were some of the really weird properties that usually sit around a long time that hadn’t moved yet. This year all those are gone. And so everything is on and moving. This includes all price points of course, and the highest demand price points, the $300-500,000 range, are even faster, with the median Days being already under a month and it’s still February. Some of the hottest zip codes in the country are already down under a week on the market. 

But those are the signals we’re watching. How quickly and at what price points to we feel rising mortgage rates. As of the third week of February 2022, American homebuyers are undaunted. 

OK that’s all the data for this week. To get your local data for your buyers and sellers, go to AltosResearch.com and join us. You can get your local market data into your clients’ hands today. It’s that easy. Because everyone needs to know what’s happening in this crazy market and the market is changing fast, it’s your opportunity to help people succeed. Also this week a new Top of Mind podcast episode will be available Wednesday. So much great stuff for you. I appreciate you being with us. More next week.