Mike Simonsen is the founder and president of real estate analytics firm Altos Research, which has provided national and local real estate data to financial institutions, real estate professionals, and investors across the country for more than 15 years. An expert trendspotter, Mike uses Altos data to identify market shifts months before they hit the headlines.
A few months ago I published a video where I asked “how much will home prices gain by the end of the year?” Using a headline like that should come with a trigger warning. We could see that home prices were inching up, but there are still so many people who think that home prices are falling. Even this week saw a press release with a “home prices in freefall” headline that got picked up all over the media.
The fact is, home prices are up almost everywhere in the country vs. 2022. The median price of single family homes in the US is up 2-3% over last year at this time. Will this trend continue into 2024?
In this week's Altos update, I discuss which price signals I'm watching for the coming year.
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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 December 11th. Please refer to the video below for all the charts I mention in this transcript!
The median price of single family homes in the US is $424,900. That’s down just a tiny fraction from last week and 2.4% higher than last year at this time. In retrospect it’s a big surprise that home prices climbed this year when the total sales volume fell so dramatically. But ultimately what happened was that while demand for homes fell, so did the number of sellers and the market found a supply/demand balance.
Home prices at the June peak did not reach last year’s peak but prices fell more quickly in the second half of 2022, so now we’re showing gains from the end of the year. In this chart you can see the dark red line is the median price of all homes on the market. June 2022 was the record peak. But prices retreated quickly in the second half of last year. This year’s spring climb and autumn decline were much less steep. We end up with home price gains.
Also notable is the price of the new listings, the bright red line. This measure tracks the cohort of homes that got listed for sale in a given week. It’s a really brilliant leading indicator for the market as a whole. In aggregate, home sellers and listing agents know exactly where to price the listing to find buyers. So when the bright red line is receding that is bearish for future sales prices. And what we know now is that prices for this leading indicator continue each week to be several percent higher than last year. Home prices are holding up just fine.
There are two takeaways from the the home prices data:
First, there are really no national indicators, anywhere in the data, that show home prices currently falling. There are none. So if you read a headline that says “home prices are in freefall” you know immediately to discount the clickbait. There are some local markets, for example Austin Texas or condos in San Francisco where the data shows prices falling. But nationally it is not true.
The second takeaway is the lesson I’ve been sharing lately: Consumers are more sensitive to changes in mortgage rates than to the absolute levels of rates. Last year mortgage interest rates rose by 450 basis points from 3% to 7.5%. That was a huge change in a short period. That’s when prices fell. One thing that triggers home prices to resume falling would be a spike in rates. If rates jump over 8% in Q1, that will indeed push prices lower.
When we’re paying attention to home prices, the other leading indicator to track are the price reductions. Watching the percentage of homes on the market that have taken a price cut from the original list price. Normal markets about a third of homes take a price cut. Right now 38.3% of listings have taken a price cut. So that’s more than normal. It’s a reflection of unaffordability. It’s a reflection of very high mortgage rates and how quickly rates rose in September and October. The change in mortgage rates at that time slowed the market dramatically. You can see how the dark red line, that’s this year, jumped starting the same day that mortgage rates jumped in September. This indicator is very precise.
You can also see on this chart that the dark red line is above the normal zone. That’s the gray band in the middle. We have a slower than normal market. Notice how last year price reductions were over 42% in December. That told us very clearly that home prices in the first quarter of this year would be down. Homes that are on the market now and don’t have offers, they do a price cut. They get an offer in January, it closes in February and you start hearing about it in March. So the November price cuts tell us a lot about the first quarter.
We know that there isn’t any bullish data for home prices. Price reductions are elevated. We can see exactly how much the September October mortgage rate spike slowed things. We can see that it’s not slowing further right now.
Watch the price reductions as we cross over into the new year. Last year with rates trending lower, it moved a lot of people off the fence and put a floor on home prices. Price reductions dropped in Q1. That could happen again this year if we get lucky and rates keep falling.
There are now 546,000 single family homes on the market. That’s 1.75% fewer than last week. Inventory is finally declining for the holidays. There are 2% more homes on the market now than last year at this time. The last few months as mortgage rates rose, inventory rose too. Rates have stabilized, and inventory if falling into the new year.
We can see that while inventory rises with rates and falls with rates, that there is no signal of any flood of sellers. If we had a flood of sellers, that would be bearish for home prices. Too much supply implies that home prices would drop. But the fact remains that we don’t have enough supply of homes on the market. So any increase in inventory is more selection for buyers, it means more sales happen, and the market is generally healthier.
Each week all year long the housing market had very few sellers. Now there are slightly more sellers each week with new listings than there were last year at this time. It’s still too few, but the pace of sellers is getting closer to normal for this time of year. 52,000 new listings this week of which 9000 of those are already in contract, so 43,000 new listings unsold this week.
The key lesson from the inventory chart is that slightly more inventory means slightly more home sales in 2024.
As inventory starts to generally get a little less restrictive in 2024, we want to make sure that there is sufficient demand that it’s not a sign of an impending housing market crash. If we have a flood of sellers and no buyers, that would spell pretty rough for home prices. So how do we know that there is enough demand for the homes on the market? One place to look is the immediate sales tracker.
This week there were those 52,000 new sellers and 9,000 of which went into contract within just a few days of listing. It’s not a ton of demand of course. Affordability is really difficult for so many people. But the immediate sales pace is a little bit stronger than last year at this time. I interpret this as another signal that home sales will increase in 2024 and that there is no downward pressure on home prices.
In this chart the height of each bar is the total number of sellers that week. The light portion of the bar are the immediate sales. I’ve added the dotted lines so you can see the growth vs. last year at this time. A little improvement. Of course two years ago we were still in the pandemic free money frenzy so there are about 25% fewer new listings each week than at that time. That was a hot market. We’re many years away from that kind of market again.
A few more listings, a few more sales, this is good for housing. It shows the early stages of thawing from a frigid year. This thawing makes sense too. Consumers are now shopping for homes knowing that mortgage rates are in the 7s. Stability in rates lets people act.
It’s no secret that home sales volumes have been in deep recession in 2023 - that’s why I called it frigid. 30% fewer home sales this year than in 2022. I’ve been trying to highlight in the last few weeks how the pace of home sales has stopped declining and is about to show some recovery in 2024. Why we’ll have more home sales in 2024 than 2023. This week there were 6.4% more new contracts started than the same week last year.
There are still 1.3% fewer contracts pending overall than last year at this time. 279,000 single family homes are in the sales contract pending stage vs, 282,000 last year. These are sales that will close in the near future. In this chart each line is the total number of single family homes in contract along the year. This year’s dark red line showed way fewer home sales all year long. Now though the two lines have converged and it looks to me like we’ll start 2024 with slightly more sales in the hopper than we started this year. Keep in mind the headlines you hear elsewhere will still report shrinking home sales for a few months of course. Because these will close in the future. We haven’t crossed over to growth yet, but the transition appears to be here.
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