Mortgage rates fell two weeks ago, then climbed steadily again last week. Is it enough to motivate any new seller activity or are we looking at 2025 before home sales finally recover?
From a total inventory perspective, we haven’t seen any pickup in demand in the past couple of weeks as mortgage rates fell under 7%. This is a bit surprising to me. I expected to be able to measure some pickup in demand with cheaper money. Two factors are at play here.
1) It could be that rates haven’t fallen far enough or stayed there long enough. I expected that under 6.75 to 6.5 would be a threshold for buyers to start moving. We hit 6.5 10 days ago. But rates didn’t stay there long and climbed all last week. As a home buyer, I’d have to be attuned to rates and purchase options to jump that quickly. Most buyers are frankly not that aware. Rising rates can stop me quickly, but it takes longer for lower rates to motivate me to take action.
2) The other reason we haven’t measured any pickup in demand with lower rates is seasonal timing. For falling rates to motivate buyers to take action, we’d need buyers actively shopping. We could be witnessing homebuyers totally checked out for 2024, waiting to see where rates are, what the economy is doing, and who is president next spring. If I were a homebuyer, I wouldn’t see many market trends that would make me want to jump now.
Whatever the reasons, we are not yet measuring any increase in demand for this dismal 2024 housing market.
Inventory
There are now 693,000 single-family homes on the market. That’s a 1.3% increase for the week, a slightly bigger increase than the week-by-week seasonal model estimated. There are almost 41% more homes on the market now than last year. Rising mortgage rates slowed homebuyers near the end of August last year, and inventory rose unseasonably fast. The previous year’s inventory was rising 1-2% per week through the end of October.
We have yet to hit the peak of inventory for this year. With a 1.3% weekly gain in unsold homes on the market, the slope hasn’t yet plateaued. From this supply perspective, we haven’t seen any pickup in demand in the past couple of weeks, with mortgage rates under 7%. As I mentioned, this is surprising to me. I expected some pickup in demand with cheaper money. Since we have yet to see even a plateau in inventory, that implies that home buyers need to pay attention to mortgage rate changes. Houses and payments are still very expensive, and it’s late in the season.
So, the next signal we’re looking for is whether the weekly inventory change levels off—from 1.3% weekly gain to under 1% to flat. If mortgage rates don’t rise, I’m looking for that significantly over the next month. Suppose unsold inventory keeps rising despite dropping inventory. In that case, that will cause me to go back to the forecast models and recalibrate. So keep your eyes on inventory for the next six weeks or so.
Pending home sales
Speaking of recalibrating, we did a big database code upgrade over the last week, and some of the calculations are still processing, so we’re not publishing the new listings data this week. Everything will be back to normal next week on that front.
Currently, 367,000 single-family homes are in contract, with another 77,000 condos in contract. That’s 3% fewer pending now than a week ago and unchanged from last year. When we look at the sales rates, it’s normal for the pace of sales to decline in the second half of the year after peaking in June.
In the first half of the year, I kept expecting that we’d see slight growth over 2023, but that has yet to materialize. The pace of sales is aiming for just over 4,000,000 for the year. That hasn’t grown and is slipping slightly from the pace earlier in the year. In this chart, the dark line for 2024 tracks the red line from last year. Maybe, finally, in 2025, we’ll see some growth in home sales. But it still needs to be added to the data.
Home prices
So, sales are down and show no signs of improvement in 2024. Inventory is climbing and hasn’t peaked for the year yet. If supply is up and demand is down doesn’t that imply that prices would be falling?
You’d think so, but they’re not. At least, home prices, on average across the country, are not falling. In fact, many markets do have lower home prices now than a year ago. In many places, home prices are climbing. Nationally, home prices are about 3% higher than a year ago. Looking at the price of the new listings cohort each week helps us see what’s going on.
In the last three years home prices have barely moved since 2022.
Prices climbed during the pandemic, from a median price of $300,000 to $350,000 to $400,000. At the bottom of the chart, in 2018-2019, we had rising mortgage rates and Trump trade wars that were really slowing the economy. Home price growth stalled from 2019 to 2020. Then, of course, in Q1 2020, all the macro factors changed.
I like using this view of the price of the newly listed cohort each week as a leading indicator of future sales prices. A house gets listed now, it’s on the market for a month, takes an offer, goes into contract, and the sale closes another month in the future. When sellers have buyers, they price the listing at a slight premium. So, we can see the rapidly responsive price changes.
The median price of the new listings this week was $410,000. That’s down from last week and is just 2.8% higher than last year at this time. Sellers have what’s known as “downside stickiness” to their asking prices. Home sellers don’t really want to list less than the neighbor, so even in a light-demand world, we don’t see dramatic home price declines.
This helps us forecast what might happen to home prices over the next few years. We’ve had two full years with basically no home price appreciation, but prices did not crash even though total transaction volume crashed. I could imagine a few more years with little or no change in home prices while incomes improve, and maybe in the future rates fall again so affordability finally recovers.
Sales prices
When we look at the homes taking offers and going into contract this week, we can see the median price nationally is $389,900. That’s down almost 1% for the week but is right around 4% greater than a year ago. So, the new listings are showing 3% price gains, and the new sales contracts are showing about 4% price gains. The closed sales for the year will be somewhere in this range.
Sales prices inch down with the season in the second half of the year. This year’s dark line is still elevated over last year when we look at the cohort of homes taking offers and going into contract each week.
People ask me how the Altos measures of home prices are different from other measures like the Case Shiller Index. One difference is that Altos measures the housing market. Case Shiller is what’s known as a repeat sales index, where they try to look at the price of the same house over time. How much has the price of a given house changed? In the Altos data, if I walk into the market today, this is what I can buy. This is the price people pay for homes. Altos is focused on “How much do homes cost?” Where a repeat sales index is focused on “how much has the value of a house changed over time?” They’re tightly related, of course. As demand increases, the market price climbs, and the repeat sales value climbs. But if you’re buying or selling a home, I’d suggest that the number you care about is the market number. “What’s actually available today? How is the market changing? Is it affordable to me now?”
Even as home sales volumes haven’t increased, as I mentioned we’re on pace for 4 million sales in 2024, buyers know where the price is. That $390,000 or so is the buy box today for the American consumer. It’s up just a tiny fraction from a year ago and shows no signs of increasing dramatically this year. It could fall quickly if mortgage rates jump again of if for example the economy tanks hard.
Price reductions
We’re approaching the end of the season. The homes on the market are priced at reasonably stable levels. The percentage of homes on the market with price reductions edged up this week, but the pace of price cuts is not rising particularly quickly anymore.
About 39.7% of the homes on the market have taken a price cut from the original list price. That’s up about 30 basis points from last week. You can see in the next few weeks how the slope of this year’s price cuts, the dark line, will take us below the dramatically slowing market of 2022.
The price cuts data is consistent with the other supply and demand and pricing indicators we’ve shared today. None of it leads us to any price strength in the market. But nothing is collapsing either.
I use 35% as a rule of thumb for “normal” here. In all markets, some sellers overprice and take a price cut. It’s usually about a third of the market, though that varies by location. Phoenix, for example, is normally around 40%, whereas the perpetually tight inventory in the Bay Area means only about 20-25% normally takes a price cut. Nationally, more sellers than normal have had to cut their asking prices. That should be no surprise. What we’re watching for now is if buyers still remain reticent for the rest of the year, does that “downside stickiness” for seller pricing start to become unsticky? That is, do sellers finally get frustrated with a lack of offers and take the discount to move a property? We haven’t seen any evidence of that yet. And since most homeowners have a ton of equity and excellent financing, you can imagine that those sellers have no need to hurry.
And that’s why we do this data work each week. If sellers finally change their expectations, we’ll see it in the data quickly. Mortgage rates stayed higher for longer than anyone anticipated this year. Maybe we’ve finally turned the corner? If we’re lucky? For buyers and sellers, these conditions can change fast.
Mike Simonsen is the founder of Altos Research.
Written by Mike Simonsen
