I’ve been highly tuned in looking for signals that the housing market is slowing. By now everyone knows that unsold inventory of homes on the market is climbing. But is that unsold inventory surging? Is it getting to unsustainable levels? Are home prices dropping?
As the economy stays surprisingly strong, mortgage rates have stayed higher for longer than anyone expected. That keeps homebuyers on the sidelines. Because home prices are high, and affordability is low, it is always legitimate to fear a potential real estate market crash. But, what does the data say? No need to fear, a housing market crash is not imminent.
Inventory is up this week
There are now 621,000 single-family homes unsold on the market around the U.S. That’s an increase of 1.5% for the week and 38% greater than this time last year.
In the last few weeks, Inventory is no longer growing compared to last year. I’ve mentioned before that we could see 40% inventory growth over 2023 this summer. We’re almost there. But, that relative level has compressed for two weeks in a row now.
For 31 weeks, inventory has been expanding compared to the year prior. Now, it seems that trend has plateaued.
It was July last year when rates climbed over 7%, and they haven’t really come down yet. Higher rates lead to more inventory. We’re about to cross the threshold where rates are no longer higher than they were a year ago. If the 30-year fixed-mortgage rate ticks down into the 6s over the next few weeks, we could continue to see inventory growth compress.
The inventory difference from last year peaked two weeks ago at 39% more homes on the market than in 2023. Now there are 37.6% greater than last year. This is a subtle change but it means that inventory growth isn’t accelerating. Supply is not running away from demand.
These are signs of stabilization in the residential real estate market. Isn’t that surprising?!
We need more listings
There were 71,000 new, single-family home listings unsold this week, with another 16,000 immediate sales for a total of 87,000 sellers. New listings data isn’t bad, but it’s not great. If you only have 87,000 sellers, it’s impossible to grow total sales to a 5 million annual pace. There just aren’t enough homes for sale.
There are about 9% more sellers each week than last year, so that’s good. That growth is down from earlier in the year. This is another indicator that inventory growth is losing some momentum. So if you’re betting on a crash, like expecting a big flood of inventory coming, or even an acceleration of inventory, I don’t see it in the data yet.
Pendings are barely up
There were 69,000 new contracts for home sales this week — 2% more than last week. So, not cratering, but not showing any real growth either.
There are 396,000 single-family homes in contract. That’s a couple percent more than last year, and up a smidge from last week. Any sales volume growth we saw earlier in the year has gone. The market is still 15% smaller than it was two years ago.
We’re over two years into the era of higher mortgage rates. If we’re lucky, the second half of 2024 will see Fed rate cuts and perhaps slightly declining mortgage rates. That would be the opposite pattern from each of the last two years. If we get that, expect to see relatively better sales volumes in late summer this year.
Home prices are level
When we look at the price of the homes selling each week we can also see the abrupt change that happened in late 2022. Prices dropped in June and prices dropped in October.
Right now the median price of homes going into contract is just a hair under $399,000. Home prices have been at this level for a couple months. Prices are now 3.7% above last year at this time. I’d expect this measure of home prices to stay right about $400,000 until later in July before receding in the fall.
The median price of all the homes on the market is $455,400. That’s basically unchanged from last week. If you walk into the U.S. housing market today, you’ll see that home prices are unchanged from last year at this time and in fact 1% below where they were in mid-June 2022.
Price reductions are up
Price reductions are the leading indicator of future home sales prices. The percent of homes on the market that have taken a price cut from the original list price is now 36.4%. That’s up 70 basis points from last week and is 500 basis points more than a year ago. Like the other indicators, price reductions shows very slow demand. It shows flat at best for future home sales prices.
This year as mortgage rates have stayed stubbornly high, price reductions have been growing each week. We’re on our way to 40% of the market with price cuts now, that’s notably slow. It’s also why we continue to expect slowing home price appreciation for the second half of 2024.
Unsold inventory is up, but growth appears to have plateaued. New listings aren’t great, so that implies future inventory growth is capped. As long as mortgage rates stay elevated, the signals are for home prices to end the year flat with little or no home price appreciation over 2023. There’s nothing in the data yet that looks like prices dragging notably lower across the country.
Mike Simonsen is the founder of Altos Research.
