Will More Inventory Lead to More Home Sales in May?

Inventory looks to be finally climbing for the spring. We had the most new listings this week since September. A nice little increase. Still 10% fewer listings each week than last year, but at least it looks like the market is loosening up a bit.

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I’m Mike Simonsen, I’m the founder of Altos Research. Here’s the latest data as we roll into the last week of April.

Inventory

The market saw the most new listings in one week since last September. 80,000 single family homes hit the market. 21,000 of those went into contract almost immediately so we can see the demand is definitely there for any new supply.

A friend shopping for a home in Pennsylvania shared that he toured one home in his price range that had obvious water damage and needed extensive upgrades. He was shocked to hear that this home had received 9 offers three days after listing! These are the homes we track in our immediate sales metric. With over 20,000, this week had the most immediate sales since really July last year. July of course is the peak of the market every year, and last year it had the added pressure of dramatically shrinking affordability. So demand fell off quickly in the second half of the year. Now we can see more normal seasonal behavior - more sales in the spring - and we can also see how our limited inventory is really holding back more sales from happening. People are buying basically everything that’s available.

And with the bump in new listings came the first real increase in active inventory of the year. There are now 414,000 single family homes on the market across the US. That’s up 2% from last week. We have 50% more homes on the market now than last year at this time, but of course 50% fewer than in 2019.

We’ve had such a restricted supply market, and I’ve been talking about how we’d have more sales if there was more supply available. So now we get to confirm that statement. As sellers finally start testing the market, we should also see the pending sales climb.

I know a lot of folks like to use mortgage applications as a proxy for housing demand, and since applications are at low levels they presume demand is too. But we’re in a supply constrained market, so mortgage application rate should climb too with more supply. I’ll be keeping an eye out for that to see if my assumptions are true.

We still have half as many as what was normal for the last decade. You can see the dark red line for this year had it’s little bump this week but still way below the normal levels. Last year at this time inventory was climbing 2-3-4% per week. This was our first 2% week of 2023 so it looks like we’ll continue to see inventory climb for a couple months now. Our inventory forecast model projects another 2% increase this week. Hopefully home buyers start seeing some better options and fewer bidding wars as we roll into the summer. Lots to watch for in the inventory chart.

Price Reductions

As we finally have some fresh inventory, and so many of those are purchased quickly, we can see that fewer and fewer sellers need to take a price cut.

This week the percent of homes on the market with a price reduction dropped to 29.4% of the market - almost back under the levels of 2019. Because the fresh inventory is coming later than normal this year, the low point of price reductions will come later too. It takes a month or so of that new inventory, some of which is over priced, to get the message. So in May we’ll definitely see price reductions start climbing again. Normally this time of year the homes that got listed in February and March that didn’t yet get offers, those are the ones starting to take price cuts now, and the normal curve is increasing a month or two after inventory started increasing. But this year since inventory has been falling, the turn of price cuts is delayed also. 

The picture we get is one of a much healthier market than we had late last year. Many more buyers. If you’d asked me at the start of the year whether we’d recover this completely, there’s no way I would have guessed it.

Median Home Price

The median price of single family homes in the US is $444,481 this week. That’s up 1% from last week. These are not spiking home prices. This is spring. Prices have stopped the decline that you’ll still see in the headlines. That’s behind us, at least until something else in the economy changes. But it’s behind us for now. 

The median price of the new listings had a healthy jump this week to $415,000, reflecting both the time of year and the underlying demand that sellers know is there in most markets around the US. The price of the new listings is a very forward-leading indicator. The homes that get listed today reflect the wisdom that the sellers and listing agents know about the buyer demand locally, and they price to that.  They take offers in May, those sales close in June and July. And we hear about it in August. So the price of new listings is the earliest leading indicator of future home sales prices. And the signals right now are not bad. 

Remember that because we have fewer price cuts now, that means the homes on the market are getting the offers at their list prices, and that means that the sales prices in the future are not falling. This is a message that’s very hard for some people to understand. People read the headlines like Case Shiller, which look at closed sales prices and they see a falling trend. Tomorrow the Case Shiller index will be released for February. It’ll include sales data from December and January too. Those were homes that took price reductions in November - which was the peak of the price cuts. The Case Shiller will be down again tomorrow. So the important thing to note is that the market tells us now that the sales happening in May and June are not under price pressure like they were 6 months ago. We have visibility to those future sales. 

The median price of the pendings - the homes that are in contract - is closer to the sale. It’s not as far ahead leading, but it’s very close to the final sales price - even though the sale still hasn’t happened yet. This week the median price of those pendings ticked up to $379,500. Again, it’s spring, prices climb in the spring. In the Altos data we don’t do any adjustment, there’s no seasonal adjustment, we’re simply measuring everything right now. And right now, homes are selling at a 1.4% lower price than last year at this time. Last year’s data was still reflecting the last momentum of the pandemic frenzy. So the price comparisons with last year will continue to get worse for the next couple months. Last year the pendings price had climbed by 8% so far in the year. This year the pendings price has climbed by only 5%. In this chart the dark red line is the curve from this year. The light red line is last year. You can see how prices are lower and ticking up.

When you’re watching for the next turn in the market, maybe recession hits harder or maybe mortgage rates climb up again, the pending sales price will be an excellent confirmation of things slowing again. So keep watching this data point.

Sales Rate

The sales rate is climbing too, at a very normal spring pace. Again, this is not seasonally adjusted. Due to the limited supply of homes to buy and of course less crazy demand, the sales pace is running 15-20% lower than last year. That’s a million fewer home sales in 2023 than the year earlier.

We’re supply constrained. There is a cap on how many homes can be purchased right now. It’ll be really fascinating to watch the pending sales rate after September this year to see if the late year demand is better than last year’s ice cold fourth quarter. But that’s later in the year. What we can see now is that until supply climbs, we’ll have limited sales.

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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