The last week of 2023 data for the U.S. real estate market is in and it may surprise you, but pretty much all the signals for housing in 2024 are pointing to growth now.
Inventory is slowly but steadily increasing over last year, which means slightly more options for buyers this spring. Sales rates are climbing. We have more homes going into contract each week now than we did a year ago — supply and demand are climbing together.
Home prices are inching up too. Prices are not rising uncontrollably like they were during the pandemic, they’re much more stable now. This implies that there are more than enough buyers at these prices and these mortgage rates to keep activity happening in housing.
While a robust housing market is generally a positive thing, this is not all good news to every person. Home sales volumes and prices are increasing, yet we still have an intense affordability crisis in this country. There are millions of would-be homebuyers who are simply priced out of the market.
The current data for housing supply and demand, all the leading indicators for 2024 indicate that the affordability crisis is unlikely to improve this year. Maybe we get cheaper mortgage rates and that will help payment affordability, but remember that cheaper rates means more buyer competition. Since demand for houses is already pushing prices higher, more demand means more upward pressure on home prices.
Inventory ends higher
The year finished with 513,000 single-family homes on the market. That’s fewer than last week of course it’s the holidays, but it’s almost 5% more than where we ended 2022. Each week sellers are easing back into the market a little more than last year. The defining characteristic of 2023 was how few sellers we had. Each year that mortgage rates are elevated mean fewer people are locked in to low rates, so our resale inventory grows.
New homes under contract
When we look at all the homes in the contract pending stage, we’ve crossed a growth threshold there too, finally. There are now 258,000 single family homes in contract. That’s 2.4% more homes in contract now than a year ago. The sales are growing in 2024. We had 51 weeks in 2023 withfewer sales in the pipeline than in 2022. But that gap has been closing and the last week of the year, now we have a few more.
If the economy slows this year and unemployment starts creeping back into reality, one place we’ll be able to track the impact on housing very quickly is here in the pending sales data. As of right now the housing market is growing.
Price reductions in “normal” range
We’re starting the year with 34.8% of the homes on the market having taken a price cut from the original list price. That’s 150 basis point fewer than last week. The curve happens over the holidays and into the new year as we get fresh inventory. Price reductions are now in what we call the “normal range.” Normally between 30 and 35% of the homes on the market take a price cut before they sell. In this chart we’ve highlighted the gray band for the normal zone. Each line is a year. 2024 at the left side of the chart starting the year just under 35%. That’ll continue to fall in the next couple months with fresh inventory. The question is how far.
Home price trends inform 2024
Home price trends in Q1 really inform the view for the whole year. The median price of single family homes in the US is now $415,000. That’s means we finish the year with home prices up almost 3% over last year. That’s not a roaring market by any means. But let’s call it price stability. It means that American homeowners gained equity in their already really strong financial position. The leading indicators for 2024 are looking similar. None of the indicators are pointing down for home prices. We already discussed how inventory is climbing and how the sales rate is climbing too.
Mike Simonsen is the president and founder of Altos Research.
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