All in all, you can see how 7% mortgage rates effectively slow down the housing market. However, rates could edge lower as 10-year Treasury yields move lower and the spread between 10-year and 30-year mortgage rates narrows slightly. If interest rates rise to around 6 soon, sales volumes are expected to rise slightly and leading house price indicators may pick up.
Altos Research is hosting a monthly webinar on Thursday, May 16th at 10am PT where we’ll dive into all the local data trends and leading indicators of what’s going to happen during the remainder of 2024. You should join us. In the video below, there is a link to the May webinar in the description. Click the button to reserve your spot now.
At Altos Research, we track every home for sale across the country every week. Data often exceeds expectations or changes very quickly. We track all pricing, supply and demand, sales, and all changes to this data so you can instantly see what’s going on. Let’s take a look at the details of the U.S. housing market as of mid-May 2024.
housing inventory
There are currently 568,000 unsold single-family homes on the market. It rose 1.5% this week. That’s not a huge increase, but the inventory is growing and will continue to grow in the coming months.
There are 35% more homes on the market than a year ago, and the gap continues to widen. We currently expect there will be 700,000 unsold homes on the market by the end of September. In the webinar later this week, we will spend time looking at the national inventory forecast and the inventory forecast for many local markets.
The stock chart in the video above is a handy illustration of consumer sensitivity to changes in mortgage rates. Remember, back in 2022, as mortgage rates were rising rapidly, so were inventories. In May of that year, inventories were rising 3% to 4% weekly. This is represented by the light red line, which rises sharply each week.
By mid-May 2022, inventories had exceeded the previous year’s levels and we were on the verge of emerging from the COVID-19 pandemic. You can then compare the curve to this year (black line). Today, inventory is growing by 5,000, 10,000 and even 15,000 properties every week. But two years ago, inventory was growing by 20,000 or 30,000 units a week. It’s a very different market now.
Last year saw the largest weekly increase in inventory, reaching about 6,000 properties. See last year’s red line was flat for the entire year? Inventory does not really accelerate in 2023 until mortgage rates approach 8% in the fall. With interest rates staying high for a long time, there are more sellers now. Higher interest rates allow unsold homes to accumulate on the market.
This forecast will be compressed if mortgage rates eventually fall. But they haven’t fallen yet, so inventories are still building.
new listings
The number of new homes coming on the market was slightly lower this week – 69,000 new single-family homes were listed and an additional 20,000 were under contract. In fact, the number of new homes on the market was down 3% from last week.
People remain optimistic that more sellers will help the market grow. Ideally, the weekly total of new listings should be above 100,000, so it’s a bit disappointing to see only 89,000 today.
Still, the number of sellers this week was 10% higher than this time last year. There are more unsold new listings, more immediate sales, and a 24% increase in the number of homes marked “coming soon.” All of these numbers suggest that total inventories will continue to grow, and sales will have room to grow as more supply becomes available.
This series may change from week to week for a variety of reasons. Each row on the new inventory chart in the film represents a year. The takeaway is that a healthy market would have 100,000 or more new listings in a given week, as it has in past years. We have more sellers than last year, but not a lot. Hopefully that number will continue to climb in a few weeks.
for sale
The total number of homes under contract is only slightly above May 2023 levels. The number of homes under contract is now only 2% higher than a year ago. The homes are in the process of being sold and being closed by escrow. These sales will end in May and June.
There were 72,000 new sales this week, about 7% less than the previous week, but still 6% more than the same week in 2023.
A chart in the video shows the total number of homes in escrow for each of the past three years. Home sales peak in June. The number of homes under contract is now 2% higher than a year ago but 15% lower than in 2022, when 460,000 single-family homes will be sold in May.
In July of the same year, the sales pace fell sharply, and in September mortgage rates spiked again, causing the sales pace to fall sharply again. By the end of 2022 (right end of the chart), the sales pace has dropped significantly, leading to an upcoming drought in 2023.
Pending sales have been slowly rising this year. Interestingly, our number of homes under contract each week continues to increase by about 5% to 7%, but the total number of homes under contract is only 2% to 3% higher than a year ago. What’s likely happening is that home sales are closing faster than last year.
Altos Research is measuring the reduction in contract days. In 2022, as the market slows down, the typical closing time is closer to 40 days. This year, the average contract length is about 33 days.
You can imagine that with financing changing rapidly, home sales can be delayed, which is what happened last year. For example, by 2024, all-cash sales will increase, so no one will be waiting for financing to complete the deal. In 2023, not only will sales start with fewer sales, but they will also take longer to finish. These nuances help explain why sales are increasing even though many mortgage market indicators remain below last year’s pace.
house price
Let’s turn to housing prices. The current median price of a single-family home in the United States is $450,000. This is unchanged from a year ago.
The average price of new listings this week is also quite close to $450,000, up from last week. Changes in new listing prices are actually an opposite bullish indicator of future prices. This series is up compared to last year, while other series are flat or compressed.
In the next week or two in this series, we may be at the peak of the year. Prices for new listings typically peak in May before the market turns to the second half of the year.
The average price of a home under contract is $400,000. There was no change this week, with year-on-year growth of just 4%. Essentially, the home you have to choose from is listed at $450,000, but the price point you’re looking for is $400,000. List prices are the same as a year ago, with prices to be determined only slightly higher.
In each case, we see that prices tend to cluster around large round numbers. For example, if you are selling your home for $450,000, for attention and marketing purposes it is better to price it at $450,000 rather than at $451,000. Prices plateau at these big numbers and then surge higher. Currently, the list price is stable at $450,000 and the sales price is stable at $400,000.
A chart in the film shows the annual trajectory of home prices. This is the asking price of all the homes on the market. This series is worth focusing on as you can see how prices climbed over the first half of the year before peaking in June. In 2022, the light red line is still rising rapidly due to the last impetus of the shopping frenzy caused by the epidemic.
Last year, the red line showed that house price growth was much slower in the first half of the year. The slope is gentler, but remains at a high level in the second half of the year. On the right end of the chart, you can see how the end of 2023 sets the market for the housing price gains seen so far in 2024.
But the slope of price increases has slowed this spring, and those price gains have disappeared. By this measure — looking at the asking prices of all homes on the market — there has been zero price appreciation over the past year. Sellers know exactly how much to list their home for sale. This tells us a lot about future sales.
price reduction
As we look at leading indicators of future home sales prices, we’ll find out what percentage of homes on the market have dropped in price today. In other words, of all the homes listed, how many have seen a decrease in their original list price?
Currently, 33.7% of the houses on the market have reduced their prices. This is up 30 basis points from last week and 410 basis points above the rate in mid-May 2023.
As the chart shows, there are more homes on the market with price reductions than in the most recent month of May. You can also see that the ratio is rising every week. The past three years are shown in red, while the gray lines represent each of the previous ten years.
Price cuts always happen this time of year. Most homes come on the market in the second quarter, and if no offers come in, they drop the price. This trend peaks later in the year when the seasonal cycle resets ahead of the holidays.
Today, more and more homes are seeing price reductions, and quite a few are going up every week. If your house is on the market now, but there are no offers, you might lower the price in June, receive an offer in July, and close the sale in August. This is one of the trends we’re watching right now.
