The hardest position to take in analyzing the housing market is one that is contrarian and bullish. When everyone knows that the housing market is sluggish and weak, but the data shows surprising strength.
That’s where we are right now. Home sales are significantly better than they were last year at this time. No one else is reporting it yet, because the traditional data takes so long to reach the headlines. This week, we count 14% more homes in the contract pending stage now than a year ago. These are homes that will generally close in November and December.
Another tricky part of communicating this news is that home sales aren’t suddenly great. This isn’t a strong market; it’s just better than last year. Last year was weak as mortgage rates were hitting 8%. But they’re back up to 7% now, so maybe this strength is fleeting and will evaporate as we close out the year.
Meanwhile, national home price signals had another positive week this week. Inventory is past peak for the year, so the momentum looks to keep the trends in a positive direction for now.
Let’s take a look at the data as we’re already in November 2024.
Inventory drops again
There are 736,000 single-family homes unsold on the market in the U.S. That’s a couple thousand fewer than last week, and down again from the peak two weeks ago. The unsold supply of homes on the market has now passed its peak for 2024. The inventory peak came a month earlier than in 2023.
There are 29.8% more homes on the market than last year. Remember in September we were at 40% more homes on the market and now we’re under 30%. That’s because in the fourth quarter 2023, the market was grinding to a halt. Mortgage rates were super high and inventory was building. The market is different now.
The market peaked with almost 740,000 single-family homes unsold a few weeks ago. That was about 6% more than we had anticipated earlier in the year. We’d modeled that the peak would be more like 700k. That difference can be attributed to mortgage rates staying higher for longer through September. Higher rates create more inventory.
One reason inventory can’t drop quickly this year is because so much of the country, like the midwest and northeast, don’t have many homes on the market. Places like Chicago have barely more homes unsold than during the pandemic. It’s hard for inventory in Chicago to fall for the holidays where there are already no homes on the market.
It remains to be seen if this recent spike in the cost of money is going to reverse the supply trend. For whatever reason, the trend seems to be holding now.
New listings rise
There were just under 61,000 new listings unsold this week. That’s just a touch more than last week, but 17% more than a year ago. When you include the 9,400 immediate sales, the total is 13% more sellers than a year ago. Last year at this time, the market was in deep retrenchment — both buyers and sellers were walking away. So, the new listings volume last year was low and dropping. The market feels marginally healthier now.
While it’s late in the year, you could say that the weekly new listings are in the “old normal” range now. Many years of the last decade there would be 60,000 to70,000 new listings in a week in November. We’ll see if this trend continues, because consistently more sellers would signal a transition to new market dynamics.
Maybe this year’s strong showing is just a reflection of the country finally getting some mellow weather. It’s really just one week. Sellers could dip again next week. But maybe it’s an early sign that we’re witnessing the slow erosion of the mortgage lock-in effect? Are home owners tired of waiting on the sidelines for conditions to improve?
Home sales show a jump
On the demand side, the market showed a jump in new transactions just as it did a jump in new listings this week. We counted 63,000 new contracts started for single-family homes this week. This may be evidence that the activity is a bit of noise, with some fluctuations caused by hurricanes.
People had deals to do, but they got delayed for a few weeks. The key with the newly pending home sales data is that we always keep our eyes open for conditions where sellers are climbing but buyers are not. This week, both sellers and buyers both accelerated.
There are now 354,000 single-family homes in the contract pending stage.
One thing that I find fascinating is that even though mortgage rates have jumped back up close to 7%, we haven’t yet seen a slowdown in the sales volume. As rates rise and home prices stay elevated, mortgage payments for a typical buyer have inched back up close to the highs from a year ago. Affordability is getting worse right now, but we haven’t yet seen a correlated slow down in buyers. I don’t have a great explanation for why that is. Maybe buyers are just slow to respond to fast changes in mortgage markets.
Here’s another data point that emerges when we examine the pending home sales. In August the withdrawal rate — the listings that never got offers, are not pending, and are no longer for sale — was higher than previous years. It was one reason that inventory didn’t grow more quickly. If a seller is not happy with the market conditions and chooses not to sell, inventory goes down. In August, we saw more withdrawals, but It no longer appears to be that way. Withdrawals were climbing in the fourth quarter 2022 and 2023, but they’re not climbing now.
Home prices are resilient
I’ve shared recently how the median price of homes in the U.S. are staying resilient right now. That surprised me given the obviously weak first three quarters of the year. The chart below is the median price of the newly pending contracts for single-family homes, and you can see that resiliency. That price is $389,900 again this week. That’s unchanged from a week ago and is running 5% to 6% above home prices a year ago.
Home price strength has been the most surprising development in the housing market this year. We’re looking at the national average, of course. There are some regions where home prices are down.
There are local markets where home prices have declined for the last two years and haven’t found a bottom yet. Some of these markets I’ve looked for signals of price upturns and don’t find them.
Price cuts dip
Price cuts dipped again this week. Fewer home sellers found the need to reduce their asking prices. The market is almost at the lowest level in two years in November. Some 39.4% of the homes on he market have taken a price cut from their original list price.
Next week, we could have fewer price cuts than either of the last two years.
We use price reductions as a leading indicator for future home sales. I see a market that stayed frozen for much more of 2024 than anyone expected. Buyers waited on the side lines for cheaper money. That mortgage rate dip finally emerged in September. That was enough to motivate some homebuyers. We didn’t see that motivation when rates were at 6.5%, but we did when rates fell closer to 6%.
Rolling into 2025, we’re currently positioned for weakness to start the year. What if we start 2025 with mortgage rates over 7%?
I think that’s the key. It’s wild how quickly the sentiment can change. As of now, 2024 looks like home prices are holding firm nationally and inventory is peaked for the year, but what if economic news or the election drives mortgage rates back over 7%?
Mike Simonsen is the founder of Altos Research.
