Available inventory of homes on the market is climbing and will continue to climb until we’re finally in an environment of declining interest rates. Inventory has been rising for two years just as mortgage rates have been rising for two years. Rates are higher than last year and inventory is now 21% higher than last year.
Why? Because as interest rates rise, demand slows and inventory grows.
So we’re in a rising inventory world. What we want to watch for in the data is how quickly demand slows relative to supply. Are there signals of a big flood of sellers? Are there signals in the price data that say demand is weak enough that home prices might fall in 2024?
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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 March 11, 2024. Please refer to the video below for all the charts I mention in this transcript!
There are now just over 500,000 single family homes on the market in the US. That’s up a half percent from last week and is now 21% more than a year ago. There are 100,000 more single family homes on the market than there were in March of last year. That’s what a year of higher mortgage rates brings. Unless mortgage rates fall from here, then by July we project we could have 40% more homes on the market than a year ago.
If rates fall, let’s say into the mid or low 6s, then demand will pickup faster than supply and this inventory growth trend will slow or recede.
We’re looking here at the last decade of inventory in the US. You can see a few things: first, most of the last decade inventory would fall each year. When mortgage rates are low, we want to own more real estate and each year there are fewer and fewer resellers. So you can see the late summer peak of each year’s inventory cycle was lower than the year prior. Then in the last two years rates have risen dramatically and inventory has risen dramatically.
You can also see that as a country, available inventory of unsold homes on the market is more than last year, but still 30% fewer than in March of 2020, just a couple weeks before the pandemic shut everything down. We have 30% fewer homes on the market now, nationally. And as we started 2020 we were already at record few homes on the market. So as a country the market would require several more years of elevated mortgage rates to get back to the old normal levels of inventory.
Now that being said, there are dramatic differences in how local markets are behaving right now. The Gulf markets from Southwest Florida over to Louisiana, I’m in New Orleans today speaking at a conference and it’s true here, over to Texas, have inventory levels now mostly back above their pre-pandemic levels of 2019 or higher. Whereas in the Northeast and parts of the midwest, inventory is only just starting to grow off the pandemic lows.
To watch whether supply and demand might get out of balance with higher mortgage rates, we want to keep an eye on the new listings volume this spring, not just the total inventory. There were 59,0000 new listings unsold this week. That’s15% growth over the pace of 2023. There were an additional 16,000 immediate sales, so that’s 4% more sellers this year when you include those that are already in contract and not adding to active inventory. Not a flood, just a nice steady increase. More sellers generally will allow for more sales in 2024.
On this chart each line is a year. The dark red line is this year, the light red is last year’s curve. The gray lines are previous years. Notice how we’re slowly getting more sellers and more new listings to add to inventory? Also notice that this year’s line is still pretty low. Meaning, we still have fewer sellers each week than in the years just before the pandemic. It’s growing but it’s not a lot.
In fact, in 2020 in those last few weeks just before the pandemic hit, there were 80,000 new listings in the first week of March. Last year there were 51,000 new listings and this year we’re inching up to 59,000. So expect this number to keep rising. As rates are higher, we’re slowly getting back to normal levels of sellers. When everyone has a 3% mortgage, very few people want to sell. But we’re now two years past that, so 8-10 million Americans who are not locked in with their 3% mortgage. The longer the market stays with higher mortgage rates, the fewer people are locked in.
If rates fall this year, you could see this new listings number accelerate a bit, but demand will boost more than supply so total inventory will fall.
Homes are more expensive than they were a year ago. Payments are more expensive too. Inventory is rising. Are there signals of home prices falling? One of my favorite leading indicators for future home sales prices is the price reductions data.
30.5% of the homes on the market have taken a price cut. That’s a normal level for this time of year and basically unchanged from a week ago.
In this chart each line is a year. It’s not uncommon for price cuts to start inching up this time of year. Homes that get listed after the new year and haven’t seen offers start to cut their prices. It’s generally just a few now. Later in the year price cuts become more common.
Here’s what this price reductions data tells us compared to last year. Notice how this year’s dark line at the left end of the chart is just about to move above last year's red line. Last year there was still a lot more buyer momentum than sellers. This buyer momentum at the time led to 5% home price appreciation in 2023. We could see it already in March of last year.
With inventory up and demand down, there is significantly less upward pressure on home prices now than a year ago. So 2023 finished the year with 5% home price gains. Home price appreciation in 2024 is looking much flatter. Closer to 0% change in home prices for the year unless mortgage rates drop soon.
There isn’t anything in the price reductions data that says home prices are crashing. Even in places like Southwest Florida, which is arguably the weakest housing market in the country right now. Price reductions are up and climbing, but they’re not remarkably high.
The median price of single family homes in the US is now $432,000. That’s half a percent up from last week and just 1% higher than a year ago. This is the asking price for all homes on the market in the US.
The dark line here at the right end of the chart, normally you’d expect to be climbing in the spring. Prices have been inching up, but there just isn’t enough buyer demand to push home prices higher - and this is the highest-demand point in the year. Just like we mentioned in the price reductions data, the signal is fairly weak for home sales price appreciation in 2024.
The bright red line here helps us see that there isn’t downward pressure on home prices. Prices aren’t falling even though affordability is at these generational lows. The median price of the newly listed cohort this week is $420,000. That's up a healthy 4% over last week and 5% over last year. This tells us that home sellers are aware of enough buyer demand to price the new listings without taking discounts. It’s an encouraging signal for confidence in home prices for the peak season that’s now upon us.
Let’s close today with the homes in contract. We look at the contracts pending because these are the home sales that will close in March and April, so we already know where prices are and where the sales will complete over the next few months.
There are 334,000 single family homes in contract now. That’s a fraction fewer than last week, though sales are generally climbing for the spring. There were 65,000 new contracts started which is up almost 4% from a week ago and about 1.5% more than last year. There are 3% more homes in contract now than last year at this time. So that means slight sales growth over last year. This pace has slowed since January when I was expecting 10-15% home sales growth in 2024. Mortgage rates over 7% have definitely slowed the growth of sales.
Rates over 7% have slowed the growth of home prices too. The median price of all the homes in contract right now is $389,000 that’s unchanged from last week and is 4% higher than a year ago. In this chart, each line is a year and you can see this year’s prices are above last year, but the spread is compressing a bit. This time last year home sales prices were starting to come in below 2022. I shaded that gray zone on the chart. Prices are up 4% this year, but because prices are not climbing, that spread is getting thinner. This is another signal that points to flatter home price appreciation in 2024 than 2023.
These are pivotal weeks for the housing market. There are home buyers and sellers sitting on the sidelines waiting for conditions to improve. And meanwhile mortgage rates are actually rising, so conditions may not be improving. If potential sellers knew the data, would they act differently?
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