Inventory continues to increase
There are currently 605,000 single-family homes on the market. Inventory continues to build weekly as mortgage rates remain above 7%. Inventory increased 1.7% this week, and the number of homes currently on the market (170,000 units) is 39% higher than this time last year. That’s quite a growth.
A few key facts about the inventory buildup:
- Inventory is climbing everywhere, with more homes for sale now in every state than a year ago. Currently, the number of homes for sale has increased by more than 30% in most areas of the country.
- Several states, including Texas, California, Florida, Georgia and Arizona, are the main drivers of inventory growth in the country.
Higher interest rates lead to increased inventory. Last fall, we all thought mortgage rates would fall by now. If this happens, inventories will drop again. I don’t predict mortgage rates, but as long as rates stay high, this trend of rising inventory will continue. This means that by next summer, if mortgage rates are still at 7 or higher, we could end up back to the old normal of unsold homes on the market.
New listings dry up
On the other hand, if sellers don’t sell, inventory won’t increase much. There are some signs that the number of sellers is drying up. There were just 63,000 new listings this week. It was down 12% this week, which includes the Memorial Day holiday. Every year during the holidays, activities decrease. But I think it’s worth noting that the number of holiday weeks is lower than any year other than last year. The number of sellers has been slowly increasing in 2024, which I think is an optimistic trend. But sellers appear to have run out of steam.
This week, only 17% of new listings were immediately under contract. Of the 76,000 new listings, 13,000 are under contract. This rate has been declining throughout the month. 17% is much less than this time last year or even in 2022 when the market is changing so dramatically. Overall, the current total number of sellers is 10% higher than in 2023.
Our inventory will increase significantly over the next four weeks, then take a break on Independence Day, then increase again in July and then taper off in late summer. We are currently modeling October inventories, which is very sensitive to interest rates. If interest rates rise later this year, inventories will rise as well. If interest rates fall before then, inventories could also fall earlier in the summer.
We currently expect there will be approximately 625,000 single-family homes on the market by the end of the year, a 19% increase from a year ago.
for sale
There are 406,000 single-family homes under contract, up just 1% from a year ago. There were only 63,000 new contracts pending for the holiday week. Any increase in home sales feels like it’s gone. Additionally, the number of listings typically begins to decline in mid-June as the market shifts from spring to summer. So, we’re probably in peak sales right now.
Pending sales have lost momentum this spring. If interest rates drop significantly this quarter, sales will accelerate. Although it’s impossible to know whether interest rates will rise or fall in the coming months. Therefore, we will keep an eye on pending sales data to see the impact.
Prices dropped from last week
The current median price for all single-family homes in the United States is $453,500. That number is down from last week and less than 1% from last year or even two years ago. Annualized house price growth is lower than at the end of 2023.
Headlines tend to focus on sale prices, and the earliest sales agents happen while contracts are pending. To be clear, the national weekly price indicator for new properties for sale is still about 5% higher than last year. The price is currently $399,000, up 3-5% from last year. As the leading indicator of house prices has been weak for some time, we expect this measure of sales prices to fall back soon.
In fact, when we look at the state level, pending sales prices in Florida and Arizona are down from April. These are the first two states to see declines this year. Texas may also be in this phase, with home prices in parts of the state, such as Austin, still well below their 2022 peak.
At Altos, we do not seasonally adjust our data. Notably, these markets declined in the second quarter, a time when home prices typically rise.
When considering national prices, we expect national price indicators to also slow in the coming months as supply increases across locations and other leading indicators of sales prices soften.
Price cuts increase
This week, 35.1% of homes on the market lowered their asking prices. That’s up 30 basis points from a week ago and a sizable jump from a year ago. As a rule of thumb, it’s “normal” for about one-third of homes to have their price reduced before selling. Sometimes it’s intentional, sometimes it’s not, but about a third of people overprice their home when they list it and then reduce the price before selling. As home sellers face lower than expected demand, more sellers are having to lower their prices.
At present, the price reduction nationwide has reached more than 30%. This is a bearish indicator of future sales prices.
In some parts of the country, particularly New England, inventories are still quite tight and price reductions are still relatively rare. Supply in some areas is balanced with current demand levels. So this may limit this statistic when we look at the country level.
Homebuyers are clearly sensitive to the cost of funds, and mortgage rates have stayed higher this year for longer than anyone expected. They haven’t come down yet. What if they did? If you’re not looking at your data every week, you’re probably falling behind. Some buyers and sellers are unaware of what is happening in this market right now.
Mike Simonsen is the founder of Altos Research.
