Is it darkest before dawn? If we look at the real estate market right now, sales are down, new listings are down, and prices are down. However, if we look at the data now, the situation looks the most pessimistic so far this year. The bond market rebounded after good inflation data was released last week, with mortgage rates falling significantly below 7% for the first time in months. Maybe we’re finally past peak mortgage rates? If so, how do we expect the housing market to react? We’ll dig into these questions as we look at the latest data this week.
Inventories are down this week, which includes the July 4th long weekend holiday. Home prices and new listings also fell. This is completely normal for a long holiday weekend. The market, while slow, does not appear to be at a standstill. Inventories increased 3% for the 2022 holiday week compared to this week. This is a significant change.
On the price front, last week saw the first negative impact on year-over-year prices for new listings. Prices for new homes listed for sale this time are down 1% from last year.
Let’s look at the details of the U.S. housing market now heading into the second half of 2024:
Inventory dropped slightly
There are currently 651,000 unsold single-family homes on the market nationwide. That’s actually just a few tenths of a percent less than a week ago. Inventories are up 38.5% from a year ago. Despite this, there are currently 32% fewer unsold homes on the market than in 2019. However, there are still fewer homes for sale in much of the country now than before the pandemic. Only a few places, including Florida, Texas, Oklahoma, Arkansas and Idaho, currently have more homes on the market than they did in 2019 before the pandemic.
The pattern to watch in the second half of the year is whether inventories will continue to rise, as they did late last year, or if they will level off, as they typically do during the summer.
The number of new listings also fell
Last week was a long holiday weekend, so the number of new listings dropped significantly. Only 57,000 new single-family homes were listed this week and remained unsold, with another 11,000 sold immediately. This is a very small number of newly listed homes that have an offer accepted and go under contract immediately. I like to use the “immediate sales” number to measure organic demand levels. The more people who wait to buy the right place; the more people will jump at a deal when they see it. Only 16% of homes listed this week sold immediately. This is very low and has been declining since May. The total number of new homes listed was 68,000, which was actually 6% lower than last year.
Those numbers will rebound next week. It feels like sellers are pulling back now, which will limit inventory growth for the rest of the year.
New pending orders reduced due to holidays
Sales were also down over the holiday weekend. There were 58,000 new contracts added this week, about the same level as during the holiday periods of the past two years.
The total number of single-family homes currently under contract is 382,000. That was unchanged from last week and just 1% higher than a year ago. We didn’t see any sales growth.
What I’m looking for in the pending material is that if rates come down over the remainder of July and August, then we should see new pending materials increase from 65,000 per week to about 70,000 per week. If mortgage rates drop below 6.75 and stay there, sales will rise slightly, perhaps 8%.
price dropped slightly
The current median price of all listings is $450,000. It dropped 1% from last week and was the same as the same period last year.
The median price for new listings this week was $404,900. That’s a big drop for this week, but again, today is the holiday. By this measure, which tracks all new listings in a given week, prices are lower than they were in the same week a year ago — 1% lower.
This is the first time in more than a year that new listing prices have gone negative. Now, it’s a week, and it’s a holiday week, so prices may go up next week. It’s worth noting that the noise isn’t pushed in the other direction. Prices for new listings are up about 3% from a year ago. Over time, that number is compressing as demand weakens as mortgage rates rise. Having a negative is part of compression.
The national median for new contracts signed this week was $393,000. It fell 1.5% this week. Prices always drop after the holidays. These pending contracts are a proxy for sales. These are homes that haven’t sold yet, but they are the ones that started selling this week. These prices are 3.1% more expensive than a year ago. Just like on the listing side, that spread is narrowing. It’s been in the 4-5% year-over-year range for most of the year. In the coming months, house prices will generally fall as the peak buying period has passed. We’ll continue to look at this compression as well. I expect this compression to continue, so our growth will be in the 0-3% range by the end of the year.
If we’re past the peak of mortgage rates and demand picks up, it’s not clear to me how quickly we’ll see spreads increase again. But we’ll keep an eye on it because it’s a potential outcome.
Price cuts slow down
One of the reasons I continue to expect home price appreciation to slow is the leading indicator of price declines. Approximately 38.3% of housing listings across the country have seen price reductions from their original prices. That’s a bigger price cut than any recent July price cut.
Likewise, so many nuances reflect how consumers respond to changes in mortgage rates. If we’re lucky and mortgage rates ease a bit from now on for the rest of the year, one place we’ll measure the rebound in demand will be through fewer price cuts. When you list your home for sale, you lower the price if you don’t receive offers. But as new affordable mortgages become more available to buyers, this statistic will stabilize or even decline.
In the last two Septembers of 2022 and 2023, we saw mortgage rates rise significantly, causing homebuyers to hold back, and at that time we could see prices fall significantly. The two price cuts occurred almost on the same day that mortgage lending soared.
Mortgage rates will remain higher this year for longer than anyone expected. It’s unclear whether we are out of the woods yet. But maybe?
Founder of Mike Simonsen altos research corp..
