Will Homebuyers Come Back This Fall?

This week the available inventory of homes for sale inched down across the country. It was a lead up to the holiday weekend, so that’s not uncommon. But it is indicative that we’re roughly at the peak of inventory for the summer. We may have a few more weeks of inventory gains, but the long stretch where inventory has been growing compared to a year ago is now over. 

But while falling interest rates are putting a floor on demand, there’s still no sign of any rush of buyers.

Will homebuyers come back this fall, or will we have to wait until spring?

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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 2, 2024. Please refer to the video below for all the charts I mention in this transcript!

Inventory

There are 704,000 single family homes unsold on the market across the country now. That’s a fraction fewer than a week prior. This was the lead up to the Labor Day holiday, so it’s totally common for a dip in inventory. If you’re readying to sell your house this fall, you generally don’t start on the holiday weekend. Last year though inventory rose by 1% during the same week, so that’s the comparison we’re working with for the rest of the year. Last year demand was already slowing and then we got hit with a big mortgage rate spike in September. Rates rise, inventory rises. 

In this inventory chart you can see the curve for this year. I’ve also highlighted the red line from last year. You can see how in mid-September inventory started climbing again along with mortgage rates at the time. 2023 had very few sellers all year long, and restricted inventory. But 2023 ended the year with more homes on the market than in 2022. You can see that at the right end of the chart. Mortgage rates rose to 8% at the end of the year and that pushed up the levels of unsold inventory.

Also compare how inventory trends this year, as I mentioned we’re roughly at the seasonal peak of inventory, and will bounce around this level for several more weeks. You can see that pattern in the gray lines from years’ past. I expect a more seasonal pattern this year. We don’t have any strong demand of course, but at the margins affordability has improved. So slightly more transactions happen, and that keeps a cap on inventory growth. It’s the opposite trend from last year.

Mortgage rates have eased down in anticipation of the Federal Reserve’s meeting in a couple weeks. It’s widely expected that the Fed will cut short-term interest rates at that meeting. I don’t predict mortgage rates, but I think it’s important to note that the markets could react opposite of what we expect. Mortgage markets could cause mortgage rates to jump even if the Fed cuts. If that were to happen, all these comments about peak inventory for the season are out the window. It’d look more like last year with inventory rising all the way through November. So fingers crossed for American home buyers that rates have indeed peaked and continue to decline for a while. We’ll see that impact in the inventory numbers of course.

New Listings

There were just 59,000 new listings unsold this week for single family homes. There were another 10,000 new listings that immediately sold. Both of those numbers are very low. Very few sellers at this point in the cycle. In fact this week saw 6% fewer sellers than even last year which was already super low. Most of this year we’ve had more sellers than a year prior. So that’s a change. It’s just one week but something to keep an eye on.

Since the immediate sales number was only 10,000 that’s an indication of continued weak demand. We haven’t seen any uptick in buyer urgency, as measured by immediate sales. The best homes at the right price still get offers immediately after they’re listed for sale. During the pandemic, when Americans were in a home buying frenzy, there were 25 or 30,000 immediate sales per week. Now there are only 10,000. And this number is down several percent for the week. The immediate sales pace hasn’t shown any recovery with newly cheaper mortgage rates. 

This is a view of the weekly new listings for the last 9 years, each bar is a week. The taller the bar, the more sellers. You can see three distinct phases. Before the pandemic, in more normal times, we’d have 90,000 single family homes listed and unsold each week that added to inventory. Then during the pandemic that range dropped to about 80,000 per week and we were buying even more. In the two years post-pandemic it’s really been about 70,000 sellers only. You can see each year’s seasonal curve in the listing volume. The low points are New Years each year.  In the blue section at the right end of the chart see how 2024 seller trends have exceeded 2023 but they’re still very low.  Next year, we’re looking for this listing volume to inch up further, closer to the old normal levels. 

The takeaway for the new listings volume is that sellers are not in any hurry to list and sell homes, and there’s no sign in the data of that changing. Next year a healthier housing market will see that number climb over 70,000 per week to maybe 80,000 sellers per week. 

Pending Home Sales

There were 64,000 new contracts pending this week for single family homes. That level of sales each week continues to be just about the same as last year. There were another 12,000 condo sales started. 76,000 total sales this week is 2.5% fewer than a week ago. It’s the lead up to the holiday weekend so that always ticks down. It’s roughly the same number of sales started as a year ago. 

So we’re looking at roughly the same level of sales as last year, with slightly fewer sellers, that’s why inventory is probably around its seasonal peak and the annual gains in inventory compared to last year are compressing. 

September and October are going to be fascinating to watch the sales rates. Each of the last two years September and October were brutal for interest rates and for buyer demand. We’re on the opposite side of the cycle now so we are looking for any relative strength in buyers this year - will we see it? The curves in this chart show how seasonal demand obviously falls late in the year.  Will we see any relative strength in home sales after the middle of September? Like I said, we haven’t really seen change in demand yet, so I’m not really holding out any hope, but I’ll keep watching for it. 

The next opportunity in this set measuring the weekly new contracts will be at the end of September. Does the sales rate decline more slowly than the ends of each of the last two years? We haven’t seen evidence of it yet, it’s just that the baseline comparisons get easier in the 4th quarter, so we’ll keep looking. 

Home Prices

The median price of single family homes in the US this week is $449,000 unchanged for the week. The median price of the new listings is $399,999. Also unchanged for the week. These prices are just barely above a year ago. This is consistent with the concept of flat home sales prices for the year. 

The median price of the new contracts pending this week is $387,000. This is the price point where people are buying homes. That’s what we’re showing here. That ticked up for the week and is still almost 5% above last year at this time. 

This price of the new contracts is a pretty clear proxy for home sales. These are the offers being made each week. Homes take a little over 30 days to close the transaction. So these sales will mostly happen in September. By this measure home prices have been hovering in this 3-5% annual appreciation range for most of the year.  If you follow home price indices like the Case Shiller Index, which was released last week for April, May, June, that is still showing 5.4% home price gains over 2023. So the current sales pace that we’re illustrating here is showing 3-5% gains over 2023. So you should anticipate the headline numbers like the Case Shiller to compress a bit in the coming months. There’s nothing in the data now that shows price declines like we had at two points in 2022. I’ve highlighted those here in gray. In June and September 2023, there were big pullbacks in pricing. We haven’t seen those at all in 2024. 

Since the active market measures of prices are inching closer to 0-3% gains, this indicates to me that we will see some further compression in sales prices by the end of the year. Staying barely positive. It’s hard to imagine a scenario where we see home prices surge in that time. Seasonal declines through the end of the year.  

Price Reductions

The price reductions data continues to tell the story of weak demand. I don’t see any evidence of buyers accelerating now - even along with recently lower mortgage rates. This is late in the season, so it’s easier to see slowdown than relative speed up effects with home buyers. In other words, since we’re not yet at the seasonal peak of price reductions, it’s really about the slope of this curve. Homes that are still on the market in September and October are more likely to take a price cut to attract buyers before the holidays. As we get closer to the holidays, homes are more likely to be withdrawn so they’re not sitting on the market with price cuts. We get the seasonal peak in price cuts every year in the fall. 

So we will be able to see the slowdown impact very quickly if rates were to rise from here. We saw that happen in each of the last two years in September. Rising rates added to the seasonal slowdown. Falling rates now won’t deter the seasonal slowdown like they did in 2020. We’re just looking for the market to behave a little better than last year. 

Currently just over 40% of the homes on the market have taken price reductions. That’s climbing each week as happens this time of year. But since rates are falling and affordability is improving, then by the end of the month there will be fewer price reductions than we saw at the end of 2022. The dark line will cross under the light red line in this chart.

So what’s next for pricing in the coming months? In the spring of 2023, the price reductions curve was very useful. We were coming off the very slow 4th quarter of 2022. But we saw some home buyer resilience in the spring. Each week, that bright red line in January and February was dropping quickly. That was showing buyers stepping up in the first quarter of 2023. That was an important signal because at the end of 2022, it was not at all clear that was going to happen. 

So the takeaway here with the price reductions data is that this fall, price reductions will continue to inch up each week. It’s that time of year. We’ll end the year with fewer price reductions than when we ended 2022.  And that will set us up to see if buyers in the spring of 2025 are ready to embrace lower rates. Assuming mortgage rates are indeed lower by then. 

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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