For years, the U.S. housing market boomed. Economic growth, cash flowing through the economy, and cheap mortgages all drove massive homebuyer demand for more than a decade.
People have told me, “Home prices have raced higher, it’s unsustainable, homes are unaffordable; therefore, home prices must fall. Things have to get back in line. Don’t they?”
Prices went up a ton, they’ve got to correct back down, right? But, we don’t see any evidence of it happening yet.
Home sales have crashed over the last two years with more expensive money. Inventory is still building. This week, available inventory of unsold homes rose again across the country, in almost every state. Transaction volumes have been low for two years, and supply is gradually increasing.
Aside from a few months last year, home prices haven’t declined.
The more compelling question is, “Why aren’t home prices crashing?”
Price cuts have stayed roughly level for the last few weeks. The least popular properties are being withdrawn. That’s what we call downside stickiness.
Here’s all the latest housing market data.
Home prices jump
The median price of the homes that went into contract this week jumped to $389,900. That’s an increase of 1.6% for the week and are staying in the 3% to 5% appreciation range over last year. It’s the second week in a row with an uptick in the price of the homes going into contract.
I try not to read too much into short moves like this. But I think it is notable that these sales price measures haven’t bounded the other direction. We want to keep our eyes open for signs that consumers are responding to cheaper money. This could be where we see it. Even if purchase volume hasn’t picked up, maybe we can see it in the price point where people buy.
Meanwhile, the median price of all the listings in the active market is $445,000 which is basically unchanged from the last two weeks and just fractionally above last year at this time. The price of the newly listed cohort this week is $410,000 which is 2.9% greater than a year ago.
Why aren’t home prices falling? Home price appreciation is should be zero to 3% for the year. It may be next year before we can measure price declines, or it could be that newly cheaper mortgage rates are creating a floor for prices.
Inventory still growing
Inventory is still growing clearly across the country. We’ve seen two weeks in a row with over 10,000 unit gains. There are now 725,000 single family homes unsold on the market. That’s several percent more than I expected the year to top out at and we still have several weeks before inventory starts declining for the fall.
We added 1.6% to the unsold inventory this week. That’s a pretty big jump for September. Last year, we were adding closer to 2% per week, but we haven’t seen the market really turn the corner for Autumn yet. Our model has the last week of October before we hit the absolute peak of inventory. There are 37% more homes on the market than a year ago. That’s shrinking a little bit each week because inventory was really climbing quickly a year ago. It now looks like we’ll end the year with about 27% more unsold inventory than the end of 2023. There’s 37% more homes unsold now, and it looks like we’ll end the year with 27% more unsold homes.
New listings healthy
There were 70,000 new listings unsold for single-family homes this week. That’s a healthy number in the middle of September. In fact, this is the first time in three years that we’ve had a “normal” number of new listings. There were 70,000 single-family homes listed unsold and another 10,000 immediate sales. That’s an increase of 7% more sellers than a week ago and 10% more than the same week a year ago.
Since 2020, the U.S. real estate market has lost much of its seasonality.
Are there too many sellers? When I say ‘too many’ I mean will there be significantly more sellers than buyers – a big enough disparity – to create downward pressure on prices? Home prices haven’t fallen. But is this finally the trigger? I don’t detect panic sellers, slashing prices. And I suspect that next week we’ll see this new listings number dip again, but if it doesn’t, this will be very important to watch. For example, does late year new listings volume reflect institutional investors ramping up unloading their inventory?
If residential investors who have been net buyers for the last 12 years start to unload because returns are weak, then we might see more new listings into the fourth quarter. If that happens, then we might start to see an answer to the home price question. Why haven’t home prices fallen? We haven’t had sufficient sellers yet. But we could be on the cusp of that transition.
This year we have fewer and fewer immediate sales. We started reporting on the “immediate sales” phenomenon during the pandemic. At that time, demand exploded, buyer competition was intense, there were bidding wars and sight-unseen purchases. Immediate sales are a really insightful way to understand home buyer demand.
We’ve only tracked immediate sales since 2021, and there are fewer and fewer happening each week. If you’re a homebuyer, you don’t feel any competitive pressure. Early in the year, places like Boston had very tight inventory and still had bidding wars on the best properties. But inventory is finally building and buyers are watching rates drop so they don’t feel any urgency to make an offer.
There were only 10,000 immediate sales for single-family homes this week. That’s a couple percent more than a week ago, but 25% fewer than the same week last year. This week had half as many immediate sales as 2022. In the pandemic we were buying everything in sight, that carried momentum into 2022, surprisingly longer than I expected, but now is when it looks like that frenzy is finally fully gone.
Pending home sales tick up
The total number of homes in contract actually ticked up this week to 360,000. The weekly newly Pending count is up to 62,000. That’s up a percent from last week and about 4% more than a year ago. Home sales each week are still 10% fewer than two years ago.
All year long I’ve been looking for signs that home sales might turn the corner. They have not.
Price reductions slow
About 39.9% of the homes on the market have taken a price cut from the original list price. That’s 20 basis points fewer than a week ago. When we seek to understand whether prices are falling or are about to fall, this price reductions gauge is very useful.
The clearest signal from the price reductions data is how weak pricing was in the fourth quarter of 2022 and 2023 and how this year looks different. When homes that are listed for sale don’t get offers, they have to cut their asking price. Price cuts jumped when rates jumped each of the last two years.
As a leading indicator of sales prices, we can probably see the impact of lower mortgage rates. Just a few more sellers get their offers, so the price reductions line isn’t climbing now. I expect this line to peak in November with the season but it’s important to note the recent behavior.
Mike Simonsen is the founder of Altos Research.
