Inventory grew by almost 14,000 homes this week. That’s a pretty solid number, but actually fewer than our model had predicted for the week.
Available inventory of unsold homes continues to grow but that growth in seems a bit less intense than it could be. The sales rate — the demand side — is slower than I expected. It looks like we’re heading back to those conditions of the second half of 2022 where inventory grew rapidly, but any real downside correction was mitigated with a withdrawal of supply. Sellers can just wait it out, and it looks like the U.S. housing market is seeing that now.
I think it’s worth examining if sellers will indeed just wait it out now. It’s been two years of waiting already. Glenn Kelman of Redfin was quoted as saying that he doesn’t think homeowners can wait much longer. He expects the second half of the year to see even more inventory growth. I think that’s a reasonable hypothesis, though the key is that we don’t yet see it in the data.
Inventory increases by 2.2%
There are 634,000 single-family homes unsold on the market now. That’s an increase of 2.2% for the week, and a growth of 14,000 unsold homes. That’s a pretty big gain for a single week. It’s the end of June and the seasonal peaks for listing and pricing all happen now. We probably have one more week of bigger inventory gains, then the first week of July includes the holiday, so activity falls way off.
The big takeaway is that we’ll have more inventory than 2020 starting in July. If mortgage rates jump in late summer, we would see another boost in unsold inventory. Assuming no big spike in mortgage rates, then it looks like the available inventory of unsold single-family homes will top out in October with just under 700,000 homes on the market.
We have a simple model for estimating how much inventory growth might happen in a given week based on the same week changes in previous years. For example, the model expected inventory to grow by 16,000 units this week, and it grew by 13,000.
This tells us that inventory while growing is doing so at a relatively lighter pace than earlier in the year. This isn’t indicative of runaway supply growth.
New listings unchanged
You can see the continuation of that theme with the new listings volume each week. There were 72,000 new single-family listings unsold this week. That’s basically unchanged from the previous week. That is 13% more sellers than last year at this time, but it’s not expanding any more this summer. The pace of sellers has plateaued for the year.
As I’ve been saying, for those expecting a continued much bigger growth in inventory in the second half of the year, where inventory growth helps supply and demand get out of whack, a really bearish scenario, one thing required would be: more sellers. You’d need to see week over week seller growth. We have more sellers than a year ago, but you’d also expect that to be continuing each week, and it isn’t.
New pendings data is weak
That’s the supply side of the supply and demand equation. Supply isn’t great, it’s not really getting out of hand. On the Demand side, however, the data is pretty weak. There were only 67,000 new contracts started for single-family homes this week. That’s 2.7% fewer than last week and 3.3% fewer than the same week a year ago.
The takeaway from the pending sales data is that any growth in sales volume we might have seen early in the year is gone. This is a function of mortgage rates staying in the 7s. There’s just no incentive for buyers to jump now. Unless and until mortgage rates drop, we’re in this holding pattern.
Home prices are a bit lower
The median price of all the homes for sale in the U.S. right now is $455,000. That’s just a hair lower than last week. And it’s unchanged from a year ago. Home prices by this measure are flat compared to last year. This is not surprising given the pace of sales I mentioned above, there is no upward pressure on home prices.
The median price of the homes newly in contract this week is $395,000. That’s down 1% for the week and is just 2.6% above last year at this time.
Price reductions are climbing
Slightly more inventory and weaker demand mean price reductions climb and they Price reductions are climbing. There are more sellers each week that have to cut their asking prices. Nationally, 36.9% of the active market has taken a price cut from their original list price. That’s notably soft.
When we look at the regional data, most of the year, the Florida markets have been leading the way. Sarasota, Punta Gorda, all those Gulf Coast Florida markets show that supply is way up and demand way down in those areas. You have elements like property taxes and insurance costs that are way up, so you have a lot more sellers.
The western U.S. markets are starting to sneak back in with more price reductions — Austin and Phoenix and Denver, in particular. Remember two years ago, these pandemic boom towns led the slowdown. Keep your eyes on those parts of the country. They had surprisingly strong 2023, but if we can use price reductions as a leading indicator, those markets are slowing again.
Homebuyers are obviously sensitive to the cost of money. And mortgage rates stayed higher for longer than anyone anticipated this year. They haven’t come down yet. What if they do? If you aren’t watching the data each week, you’re probably behind the curve. You have buyers and sellers who have no idea how this market is changing right now.
Mike Simonsen is the founder of Altos Research.
