Last week, the National Association of Realtors released their December pending sales data. The headline was an impressive 8% jump over December of 2022.
If you’ve been following along with the Altos data, you’ll know that home sales have been expanding for two months now. They obviously picked up in December when mortgage rates did a recent dip. We shared that sales growth data back in December as it was happening in the housing market.
The question is, will this trend continue for the year? Based on the data we can see now, it seems likely. However, December’s momentum slowed very quickly in January as mortgage rates jumped back up and as a deep freeze gripped the country. So, this growth is fragile. Meanwhile home price growth is pretty solid for the year too.
Homes in contract rises
There are more homes in contract now than last year at this time. I think this trend is durable, but it’s definitely not a guarantee. In fact, the new pendings/new sales actually came in fewer this week than last year at the same time. A few weeks ago, I confidently proclaimed that home sales would be up 15% in 2024, and since then the growth pace over last year has fallen four weeks in row!
Sales growth is not guaranteed
This week there were 56,000 contracts started for single-family home purchases. As the year progressed, most of 2023 saw 20-30% fewer home sales than 2022. Home sales were very very slow last year. Starting in November the trend finally turned positive. Finally back to growth. Just a few weeks ago, we printed 20% more sales in a week than the year prior. This week was 0.8% fewer. So it was a down week. As I said, this sales growth seems durable. But it is not guaranteed. If mortgage rates are in the 7s this year, this growth will not hold.
Home sales grow
There are now 276,000 single family homes in contract — 5% more than last year at this time. So we already know that home sales in the first quarter have grown by 5% over last year. That’s already in the bag. Despite this week’s little dip in the new contracts, I expect this growth trend to continue. Assuming mortgage rates stay in the 6s.
There are 276,000 single family homes are in contract vs. 264,000 last year at this time. Make no mistake, 276,000 is still almost 30% fewer than were in process in January of 2022, right at the end of the cheap money frenzy. One reason the housing market can grow this year, is because we’re coming off such a very low base. Very few home sales in ’23, so ’24 is on track to grow.
Mortgage rates less volatile
The other reason that home sales volume is increasing in 2024 is because of less volatility in mortgage rates. If mortgage rates stay in the 6s this year, sales are poised to grow. If they climb back into the mid-sevens, this growth trend will stall. We watched that stall last fall in September and October. We can even see it just a little in the last few weeks as mortgage rates climbed from the mid sixes to 6.9%. Any projection I make about growth in home sales this year is predicated on mortgage rates not jumping into the 7s or 8s again.
That projection however does not require mortgage rates to fall either. We can see home buyer demand when rates are stable the 6s. I do not forecast mortgage rates, and while I’m not convinced that anyone can, many of those who attempt to do so are projecting rates in the 5s by the end of the year. I suspect if that happens we’ll see even more demand, with a strong pickup in home sales volume coupled with falling inventory levels, and a return to rising home prices.
Inventory falls slightly
When I say inventory would fall with falling mortgage rates here’s what I mean. There are currently 503,000 single family homes unsold on the market. That’s the active inventory across the country. Inventory fell by six tenths of a percent last week. That’s actually very normal for the last week of January. Most years, inventory levels bounce around the year’s low in the winter months before starting to climb with fresh sellers in February and March. In the last couple years demand has been stronger in the spring, mostly a function of the randomness of mortgage rate fluctuations, so available inventory of unsold homes on the market kept declining well into April.
Home price appreciation trend will continue
If you’ve been paying attention to any of the many home price measures in the headlines, you know that home prices are up over last year. And based on all the leading indicators available in the Altos data, that home price appreciation trend will continue this year. The median price of single family homes in the US is now $424,000. That’s up 1% over last week and continues to be a few percent higher than last year.
We use the Altos active market pricing data as a leading indicator of where home sales prices will complete in a few months. A house is on the market now, it gets an offer in February, it closes in March or April, and you hear about that in the traditional housing data in May. But we can see right now where those prices are. And those prices are up.
Here’s what’s wild. When we look at the price of the homes in contract, this is a very close proxy to the sales that will close in the next month. The median price of the homes in contract is just under $385,000. That’s 6.8% higher than last year at this time. As mortgage rates jumped so dramatically in 2022 purchase demand slowed way down. And that’s when home prices peaked in the second quarter of 2022. As a result by that same period a year later, April May June 2023, home prices showed year over year declines.
It can be hard to communicate this with buyers and sellers. Heck it’s scary for me to talk about here. There are folks on the sidelines waiting for rates to drop so they can swoop in for sudden bargains. But they may not realize how much competition is waiting right along with them.
People need help understanding this fast changing market, and they need to hear it from you.
Mike Simonsen is the president and founder of Altos Research.
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