There was no change in house prices this week. New listings peaked a few weeks ago. While the number of new listings won’t drop significantly in July, we can assume there will be fewer sellers each week for the rest of the year.
House prices are likely to fall after next week. The seasonal peak in house prices usually occurs on June 30.
Due to slow demand from homebuyers this year, the available inventory of unsold homes will continue to climb toward the end of the third quarter. So even as new listings taper off and prices fall back, the amount of unsold inventory will continue to grow for months.
Let’s take a look at the details of the U.S. housing market, now entering the second half of the year.
Inventory increased by 1.8% this week
There are currently 646,000 unsold single-family homes on the market across the United States, up 1.8% this week and 39% higher than last year. This means there were 11,000 more unsold homes this week, which is a sizable increase. That’s a little bit more than we expected this week, which I think speaks to continued weakness in homebuyer demand. It seems likely that inventories will continue to expand into October. In pre-pandemic years, inventories would peak in August, but now it appears seasonality has shifted later in the year. This is especially true if mortgage rates continue to move higher, which they appear to be currently. Higher interest rates create more inventory.
When we look at inventory for the remainder of the year, the market is expected to peak in October with approximately 700,000 single-family homes in unsold inventory. By the end of this year, the number of homes on the market is likely to be about 20% higher than at the end of 2023. If home prices surge again, there will be 30 or 40 percent more homes on the market by the end of 2024 than the year before.
New listings slow
Nearly 71,000 new single-family homes came on the market this week and remained unsold. That’s down 1.5% from a week ago. Adding in the 15,000 instant sales, the total number of sellers is 86,000, which is not a lot. This is an increase of 8% from last year, but not a lot. Plus, it’s not a climb.
The number of new listings will not drop significantly in July. We may see 70,000 or more new listings unsold in the next few weeks. There is currently no sign that the seller is accelerating the sale.
The question is: How quickly do sellers retreat? It’s helpful to compare this year to 2022 and 2023. Both have happened. But after July 4, 2022, sellers retreated and the inventory imbalance suddenly became much more balanced.
In 2023, sellers stayed away from the market all year long. The seller shortage is the biggest event in 2023. If this market is going to get completely out of control, more sellers are going to need to come in every week, but we just don’t see that. Inventories are building due to weak demand.
If you think supply in the housing market will take another hit when people lose their jobs – and we’ll eventually see a growth in sellers once the recession hits – that’s probably true. Two things to remember: The data doesn’t show this, and there aren’t any distressed sellers yet.
Pending home sales drop slightly
There were 67,000 new contracts signed for single-family home sales this week. That’s a fraction less than last week and essentially unchanged from a year ago. So even though new listings aren’t growing, sales aren’t growing either. The current demand data is hardly encouraging.
What does this mean for the rest of the year? This means that the annual housing sales level will remain at around 4 million units. This sales rate is much lower than I expected at the beginning of the year, which is the result of mortgage rates remaining high for a long period of time.
House prices are likely to go lower in the coming weeks
The median home sales price to start this week is $395,000. This is the price people pay for their homes. Home prices peaked in June, so you should expect the numbers to move lower in the coming weeks and months. The question is how far this curve will fall in the second half of the year. Two years ago, we saw home prices deteriorate rapidly as mortgage rates soared.
Meanwhile, the median price for all homes in the United States is $455,000. This is unchanged from last week and last year. With this metric, Altos simply counts the number of homes for sale across the country and comes up with the median price of those homes. As a leading indicator of future sales prices, asking prices are stable but not yet starting to fall. I’d been expecting it to do that, at least a little bit.
The median price of new homes listed this week was $429,000, up this week and nearly 4% higher than last year. New listing prices will drop during the July 4th holiday, then generally fall back throughout the remainder of the year.
Price cuts continue to increase
As mortgage rates remain high, homebuyer demand remains weak. As a result, price cuts are still increasing across the country. About 38% of the homes on the market have received price reductions from their original list prices. This is an increase of 70 basis points from last week. It’s quite high, but not catastrophically high. It’s growing pretty fast, but not catastrophically fast.
At this time in 2022, when mortgage rates are rising rapidly for the first time, price declines are also jumping at a rate of 140 or 150 basis points per week. Currently, they are rising 50-70 basis points on a weekly basis. The rise in 2022 led to a fall in home prices in the first quarter of 2023.
As we look ahead based on what we’re seeing here, I expect home prices to be flat in the second half of the year. It’s hard to make that call because many price indicators, like the for-sale price above, haven’t started to compress yet. I wish they did, but they don’t.
But that’s what we’re looking for in the second half. Even if contemporaneous measures haven’t really begun to fade, these leading indicators point to softening in home prices. Keep an eye on these numbers! I
Founder of Mike Simonsen Altos Research.
