Will existing home sales climb at all this year?

Last week, NAR reported that existing home sales declined in June to an annual rate of 4.2 million. The question I’ve been getting lately is whether we’ve turned the corner on home sales. Will the total sales rate fall below 4 million? Or will it climb closer to 5 million?

I think it’s important to note that the pace of new sales is not accelerating. Home buying demand is limited by affordability, of course, but this is a supply-constrained market - so even if demand picks up, the rate of sales is still going to be way under 5 million.

I'll be watching our pendings data closely - pendings are the earliest proxy for the sales that will complete in the future. Homes typically take 30-45 days in contract - so when NAR reports the June sales data, these were pendings in April and May.

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I’m Mike Simonsen, I’m the founder of Altos Research. Let’s look at the data for the second week of July 2023. Please refer to the video below for all the charts I mention in this transcript.

Pending Sales

There are now 378,000 single-family homes in contract. There were 68,000 new contracts for single-family homes this week. In the chart below, the light portion of each bar represents the new contracts each week. In these videos, we focus on single-family houses and don’t include condos to keep the data clear and consistent. But, there were another 15,000 condos and townhomes that went into contract this week. The pace of 80,000 to 90,000 new sales per week translates into 4.2 million for the year.

When you think about completed sales, the pending sales that we report here are the earliest proxy for the sales that will complete in the future. Homes typically take 30-45 days in contract. When NAR reports the June sales data, these were pending sales in April and May. So if you want to see where the sales rate will be in the future, keep your eyes on this data set.

The pace of new sales is not accelerating. Home buying demand is limited by affordability of course, but this is a supply-constrained market. Even if demand picks up, the rate of sales is still going to be way under 5 million. The rate isn’t accelerating, but the comparison with 2022 is now getting easier.

In June, NAR reported that the existing home sales rate was 18% lower than 2022 at the same time. By our count, that margin has narrowed to 10% now. And the new sales rate — that is represented the light portion of each bar in the chart — is only 5% fewer than last year. So the pace of home sales is holding steady now, while it was falling in 2022.

Just to zoom in on the new sales rate. In this chart, the data shows the total count of new contracts each week. The taller the bar, the more sales are happening. The dark part of the bar represents single-family homes, and the light portion of each bar represents condos and townhomes. I included condos here so you can see the total sales pace I’m referring to. With 80,000 to 90,000 new contracts starting each week, that translates right into 4.2 million for the year. In this chart, the data also shows how rapidly the sales rate fell again in September of 2022. And how steady it has been this year. So, while the rate of sales is not really increasing, the comparison with 2022 will get easier. 2024 will likely show an increase in sales too because Q1 this year was still recovering.

Inventory

There are now 479,000 single family homes on the market across the US. Each year housing inventory typically peaks in the third quarter. Usually the last week of July. If a year is a market slowdown, like 2022 or 2018, inventory might not peak until September or October. This year is not a slowdown year. So our estimation is that inventory could peak as early as next week. My guess though is that inventory will continue to climb into late August to look more like 2021 than say 2016. The key takeaway on inventory is that there is no signal anywhere in the data, of a surge in inventory. 

We’re currently projecting to end 2023 with just over 400,000 single family homes on the market. When we started the year, our projection was for closer to 600,000. That projection calc changes each week when new data comes in. Each surprise lower adjusts the end of year lower. We’ve had low-inventory surprises almost every week all year. 

Home Prices

The median price of single family homes in the US is $450,000 again this week. That’s unchanged from last week and also unchanged from a year ago. Last year home prices were coming down pretty quickly. Last year home prices peaked at a record $459,000 in early July. Home prices didn’t reach that peak again this year.  $450,000 is a psychological threshold for sellers and prices tend to cluster around these big numbers. So we could see several weeks at $450,000 or $449,000 before more discounting kicks in later in the summer.  Home prices should end the year about $410,000, just a percent or two higher than the 2022 ended.

The median price of the new listings is $400,000 this week. That’s down from last week. The price of the new listings is basically unchanged from last year. Again, this is yet another signal that despite affordability challenges for so much of the country, there are sufficient buyers at these prices and these mortgage rates that home prices are not falling in 2023. 

Price Reductions

The percentage of homes with price reductions ticked up to 33.7%. That’s a third of the homes on the market that have taken a price cut from their original list price. Each line on this chart is a year. You can see the annual curves that the market goes through and how it illustrates when the demand is highest, the price reductions are the lowest.  I included a few more years here to illustrate how solidly in “normal” territory the market is. Balanced between buyers and sellers. The slope of the curve, how steeply it’s rising or falling, tells us if the market is shifting. This year is the dark red line and you can see how the market emerged from the frozen state last fall to the balanced state right now. The light red line from last year and the yellow line from 2020 are the most striking though. You can see how dramatically the market changed in those years. But If you study the data closely, you’ll notice that for example 2017 and 2019 the market accelerated in the second half of the year, while 2018 decelerated. Those were much more subtle shifts but if you were selling a house in the fall of 2018, you felt it for sure.

The trend in price reductions right now is just on the slow side of balanced. We can see fractionally more price cuts when mortgage rates are near 7% than when they’re closer to 6%. Slightly fewer offers, which means slightly more price cuts for the homes on the market. 

The balance in this data implies that the sales prices in August, September and October will hold up just fine. Again buyers are mortgage rate sensitive, so if rates spike, we’ll watch the rate of price cuts kick up too.

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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