More Sellers, Fewer Buyers

Altos Research
26 Feb 202414:22

Summary

TLDRIn this comprehensive update on the U.S. real estate market for the end of February 2024, Mike Simonson of Altos Research delves into the current trends affecting home buying and selling. With an increase in inventory and a notable rise in mortgage rates, the market is experiencing a shift. The report highlights a 16% year-over-year increase in unsold home inventory and a 100 basis point rise in mortgage rates compared to last year. Despite the challenges, there's still growth in new listings and sales, although the pace is fragile. The analysis also covers the dynamics of price reductions and the impact of mortgage rates on home prices, offering insights into the future of the housing market.

Takeaways

  • πŸ”΄ Price reductions increased for the first time since November due to rising mortgage rates and growing inventory.
  • πŸ“ˆ Inventory across the country is on the rise, contributing to a decrease in home buying affordability.
  • πŸ• Sales pace has slightly decreased, highlighting the impact of higher mortgage rates on slowing home buyer demand.
  • πŸ“² Mortgage rates are about 100 basis points higher than last year, leading to more inventory and softer future sales price indicators.
  • πŸ“‰ There are more sellers and new listings compared to last year, allowing inventory to build and potentially leading to more home sales this year, despite a fragile sales growth rate.
  • πŸ“Š Mortgage rates in the 'sevens' or higher could significantly affect home prices, continuing the trend of softening growth signals.
  • πŸ“„ Mike Simonson from Altos Research emphasizes the importance of tracking real-time data on pricing, supply, demand, and sales changes for accurate market analysis.
  • πŸ›  Inventory has increased by 16% compared to last year and is 53% higher than two years ago, correlating with higher mortgage rates.
  • πŸ”§ New single family home sales dipped by 2% compared to last week, indicating a slight reduction in sales growth from last year due to affordability challenges.
  • πŸ“† The percentage of homes with price reductions ticked up to 30.4% from 30.0% last week, suggesting a normal seasonal uptick in price cuts but also a slowing momentum in the housing market.

Q & A

  • What impact have rising mortgage rates had on the U.S. real estate market as of the end of February 2024?

    -Rising mortgage rates have led to a decrease in home buyer demand, an increase in inventory levels, and softer future sales price indicators compared to the previous year.

  • How has the inventory of unsold single family homes changed in the U.S. as of the end of February 2024?

    -As of the end of February 2024, there are 498,000 single family homes available unsold on the market in the U.S., which is 70 basis points more than the previous week and 16% more than the same time last year.

  • What is the expected trend for unsold inventory in the U.S. real estate market?

    -The expected trend is for unsold inventory to continue building, with no data indicating a decline in inventory levels for the remainder of the season.

  • How have mortgage rates changed compared to last year and two years ago?

    -Mortgage rates are roughly 100 basis points higher than last year and 400 basis points higher than two years ago.

  • What has been the trend in new listings and home sales growth rate in 2024?

    -In 2024, there are more new listings each week compared to the previous year, allowing inventory to build and eventually leading to more home sales this year than last. However, the sales growth rate is considered fragile.

  • What was the percentage of homes that had their prices reduced in the market?

    -As of the end of February 2024, 30.4% of homes on the market had their prices reduced from the original price, up from 30.0% the previous week.

  • What is the significance of the uptick in price reductions in the housing market?

    -The uptick in price reductions indicates a slowing momentum in the housing market. It's the first time since before the pandemic to start to resemble old normal market behavior, but it's still within the normal range of price reductions, indicating that sellers are generally getting their prices.

  • What has been the effect of rising mortgage rates on the number of new contracts for single family home sales?

    -Rising mortgage rates have led to a slight dip in the number of new contracts for single family home sales, with 59,000 new sales started this week, which is 2% fewer than last week and just a fraction fewer than the same week in 2023.

  • What are the expectations for home prices and sales in the coming months?

    -While home prices are not expected to decline in 2024, the appreciation rate may not be as strong as in previous years. Sales growth is expected to be consistent over last year by mid-March, with rising inventory and selection for buyers potentially lifting the cap on total transaction volume.

  • How does Altoos Research track and analyze the real estate market?

    -Altoos Research tracks every home for sale in the country on a weekly basis, monitoring all pricing, supply and demand, sales, and changes in data, making it available immediately as it happens to provide a real-time view of the market.

Outlines

00:00

🏠 Home prices and inventory trends in late February 2024

Paragraph 1 discusses the recent uptick in home price reductions and rising inventory levels across the US, in response to higher mortgage rates and declining affordability. It highlights how demand is slowing as rates climb, allowing supply to accumulate. Compared to last year, there are more new listings but sales growth is fragile if rates stay elevated.

05:00

πŸ˜• Sales growth struggling but expected to improve

Paragraph 2 notes how new pending home sales dipped this week compared to last year due to affordability issues, but expects consistent year-over-year growth by mid-March as inventory restrictions from last year are lifted. As long as economic data stays strong, sales should rise even amidst higher rates and growing supply.

10:02

πŸ“‰ Early signals of price growth deceleration

Paragraph 3 points out early signs of slowing home price appreciation, including an increase in price cuts on listed homes and a small dip in median pending sales prices. However, it emphasizes that prices remain above 2023 levels and are not declining, just softening from earlier heated growth.

Mindmap

Keywords

πŸ’‘mortgage rates

The interest rates that home buyers need to pay when taking out a mortgage loan to purchase a home. Mortgage rates have risen over 100 basis points (1 percentage point) compared to last year. This reduces home affordability and buyer demand, slowing down home sales.

πŸ’‘inventory

The supply of homes available for sale in the market. As demand drops due to higher mortgage rates, inventory builds up because fewer homes are being purchased. There is 16% more inventory now than at the same time last year.

πŸ’‘sales rate

The pace at which home sales are happening, measured by the number of new sale contracts initiated each week. The sales rate has been struggling to expand in 2024 because of declining affordability. A slower sales rate indicates reduced demand.

πŸ’‘price reductions

When sellers lower the asking price of their listed home, hoping to attract more buyer interest. The percentage of homes with price cuts ticked up this week for the first time since November, signalling slowing sales momentum.

πŸ’‘affordability

A measure of buyers' ability to afford purchasing a home given factors like home prices, mortgage rates, and income levels. Affordability has taken a hit from higher mortgage rates in 2024, making it harder for some buyers to purchase homes.

πŸ’‘home price appreciation

The rate of increase in home values over time. Leading indicators are pointing to slower home price appreciation in 2024 compared to the last couple of years, though prices are still expected to be up from 2023.

πŸ’‘bidding wars

Competitive situations where multiple buyers compete to purchase a home by offering increasingly higher bids over the asking price. There were many bidding wars in 2021-2022, but far fewer now due to reduced buyer demand from lower affordability.

πŸ’‘pending sales

Homes where a sales contract has been initiated but the transaction has not yet completed or closed. Tracking pending sale prices helps predict future closed sale price trends.

πŸ’‘median listing price

The midpoint price for all active home listings in the market. This indicates the typical asking price sellers have set for their homes based on current market conditions.

πŸ’‘median sales price

The midpoint sales price for homes sold in a given period. Unlike the median list price, this reflects final closed sales. A dip in median pending sales prices would foreshadow lower closed sales prices.

Highlights

Mortgage rates are roughly 100 basis points higher than last year, leading to 16% more inventory and slowing home buyer demand.

Higher mortgage rates drive up the available selection of unsold homes on the market. Inventory is still a third fewer than 2019 but keeps climbing.

Rising mortgage rates have not been cooperating with the sales rate trying to expand in 2024. Sales dipped 2% this week.

The percentage of homes with price reductions ticked up this week for the first time since November, indicating slowing momentum.

The median price of newly pending sales dipped 1% this week to $375,000. A concerning signal to monitor in coming weeks.

Home prices are not accelerating particularly quickly in early 2024 compared to last year. A notable softening of appreciation rates.

498,000 single family homes were available unsold this week, up 16% from last year as inventory builds.

59,000 new single family contracts started this week, down 2% from last week and flat with last year.

30.4% of homes on the market have reduced asking prices, up from 30% last week in a normal seasonal shift.

The median price of homes on the market is $429,000, up about 2% from last year.

New listings came on at a median $410,000 this week, jumping from prior week in normal volatility.

Home prices are not showing any signs of actual decline so far in 2024.

If mortgage rates climb into the upper 7s/8s again, home prices could turn negative.

Leading indicators for home prices are notably softer than last February, pointing to lower appreciation rates ahead.

Buyers and sellers need to see actual market data to set accurate expectations in this environment.

Transcripts

play00:01

price reductions ticked up this week for

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the first time since November in the

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face of rising mortgage rates inventory

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is rising across the country too as home

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buying affordability takes another hit

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the pace of sales inch down this week

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also so we can see exactly the impact of

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higher mortgage rates slowing home buyer

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demand as demand slows inventory grows

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last year at this time we are actually

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seeing surprising home buyer Demand with

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rates having fallen into the low sixes

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now mortgage rates are roughly 100 basis

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points higher and as a result the uh

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inventory is higher and the future sales

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price indicators are also softer than

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they were a year

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ago we still see more sellers than last

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year so each week there are more new

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listings than a year ago allowing

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inventory to build and eventually

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leading to to more home sales this year

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than last but that sales growth rate is

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fragile

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too if mortgages stay in the sevens or

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keep climbing from here you can you can

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see exactly what's uh going to happen to

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home prices a week ago I mentioned that

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some of the home price signals were

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softening home prices aren't falling uh

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but the growth signals are definitely

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softening and that that Trend continues

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this week uh the the housing market has

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been changing very very rapidly this

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year the economy has continued to be

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strong so mortgage rates have defied

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expectations and climbed higher that's

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uh why at altoos research we track every

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home for sale in the country every week

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you can't just rely on the expectations

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of what's going to happen we track all

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the pricing all the supply and demand

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all the sales all the changes in that

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data and we make it available to you

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immediately as it happens I'm Mike

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Simonson I'm the founder of alos

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research and let's take a look at the

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details of the US real estate market for

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the end of February

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2024 so there are now

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498,000 single family homes available

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unsold on the market around the US

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that's 70 basis points more than last

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week and 16% more than last year at this

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time so this is the first inventory

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increase of the year the market will

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continue to build unsold inventory from

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here for for the rest of the season

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there's nothing in the data that shows

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inventory declining from here this

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spring uh so uh you could get a little

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bounce up or down but the trend is quite

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clear mortgage rates are like I said

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roughly 100 basis points higher than

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last year at this time and inventory is

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16% more rates are 400 basis points

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higher than two years ago and inventory

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is

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53% higher higher rates creates more

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inventory many uh mortgage rate

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forecasters are still expecting a rate

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reversal but until that actually comes

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to fruition we will watch higher

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mortgage rates drive up the available

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selection of of unsold homes on the

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market in this inventory chart you can

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see this phenomenon we've shaded the red

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periods for Rising mortgage rates and

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the green for the periods when rates

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fell uh we are now two years from the

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low of mortgage rates and from the low

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of inventory they both turn the corner

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at the same time if we have another year

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or two with rates in the sevens or or

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higher we we should finally get back to

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those old normal levels of inventory and

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you can see how inventory is still a

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third fewer than it was available in

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2019 but it keeps climbing inching its

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way closer every week that rates stay

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elevated we've been sharing how the

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sales rate has been trying to expand for

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2024 unfortunately Rising mortgage rates

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have not been cooperating so last week

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showed good sales growth over 2023 and

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uh I mentioned that it might be fleeting

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and sure enough the number of new

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contracts started this week dipped just

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a little bit with

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59,000 uh new single family home sales

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started this week that's 2% fewer than

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last week and it's just a fraction fewer

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than the same week in

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2023 uh any week where we have negative

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sales growth from last year is a

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disappointment at this at this point but

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uh this is where you see affordability

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and demand take a hit from higher

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mortgage rates in this chart we're

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showing uh all the homes that get offers

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and go into contract uh the contract

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pending stage in a given week these new

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contracts pending are are shown here in

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in curves for each of the last couple of

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years the dark line at the Left End of

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the chart is uh that's this year trying

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to expand over 2023 and 2023 is really

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restricted rate of sales uh but of

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course affordability has not been

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cooperating in the last uh six weeks or

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so so I still suspect but that by

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mid-march we'll see consistent sales

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growth over last year the dark red line

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will be generally above the the red line

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of last year's rate uh at the time a

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year ago the market was facing

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dramatically restricted inventory now uh

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buyers have more selection so that cap

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on total transaction volume is lifted so

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of course economic data uh like

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unemployment for example keep coming in

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very strong and so if mortgage rates

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rise from here then home sales will drop

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quickly and so you can see you'll see

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this the dark red line here you start to

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just not separate from the the brighter

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Red Line curve from last year I think by

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mid-march we'll see it grow though uh it

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is important to note that we can have

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rising in inventory and Rising sales at

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the same time which is actually what I

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expect the I just wish the the sales

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rate were were climbing more quickly

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more reliably each week would be nice to

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see uh perhaps the most notable signal

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this week is price cuts the percentage

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of homes that uh have reduced their

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asking price from the original price it

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that ticked up this week so there are

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now there are now 30.4% of the homes on

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the market that have taken a price cut

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that's up from 30.0% last week uh every

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year has a cycle in price reductions

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that after the holidays of fresh new

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inventory gets listed so the percentage

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that have taken a price cut declines

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then in the spring some of that

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inventory is still sitting on the market

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so those sellers start cutting their

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asking prices then later in the year

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price Cuts accelerate as the summer

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comes to a close and a peak just before

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the holidays to start the cycle again in

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the Years uh the pre PR pandemic years

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uh this end of February time is actually

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a normal time to start seeing an uptick

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in price Cuts some of the boom years

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though with all those crazy bidding wars

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it took till much later in the spring

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for the price cuts to actually inch back

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into the trend so in this in this chart

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each line is a year and you can see the

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cycle very quick clearly the this is uh

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this year is notable in that price Cuts

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ticked up this week which is the first

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time since before the Pand mic to start

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to look like that old normal Market

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Behavior so we're in the normal range

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though of price reduction is that normal

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zone is that's the gray band across the

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chart here uh this meaning that sellers

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are generally fine they're generally

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getting their their prices there's no

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signal of prices falling in this data

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the uptake just shows us slowing

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momentum uh in a couple of weeks though

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we could be behind the pace of last year

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meaning more sellers with price Cuts

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than a year ago go last year at this

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time we were seeing surprise surprising

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home buyer Demand with rates in the low

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sixes and so now rates are higher we see

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the opposite Trend happening if we see

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this year's line curve towards the top

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of the gray band like quickly that would

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be an indicator the next indicator of

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home price weakness so we'll see it tick

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up above last year but uh probably not

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to the top of the uh that gray band

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we're not there yet it is isn't a

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catastrophic call for home price it is

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simply very clear evidence of how home

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buyers wait when mortgage rates stay

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higher for

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longer uh the the uh price of the homes

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that went into contract this week dipped

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a little bit too which was interesting

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to note the median price of the newly

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pending single family home sales uh was

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$375,000 this week that's down from

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378,000 last week almost a 1% dip uh

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it's still 2% higher than a year ago go

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uh it is normal to have a little bit of

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noise in the pending prices you can see

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a little up and down across the year but

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it's it's not a straight line but uh it

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is maybe unusual in this key part of the

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buying season to see a down tick week

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it's something to keep an eye on it's

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one little tick uh this chart of home

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prices going in this is home the prices

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of homes going into contract it can be

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very telling about demand the pink line

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here from uh you can see from 22 had

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sharp down moves in July and again in

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October 22 uh this was the market

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responding to those big jumps in

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mortgage rates at the time so when the

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prices on the new contracts dipped in

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the second half of 22 that led to

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year-over-year sales price declines in

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the first half of

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2023 so these contracts are the first

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indication for those sales that will

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close right now in March and

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April the uh this week's could just be a

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little noise in the data like I said but

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if it proves persistent that would be a

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very big signal

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indeed uh we will keep watching the uh

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dark red line here if it if it dips

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further you can be sure that I will

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highlight it for you uh prices dipped

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this week but are still up over 2023 I

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expect the dark R line to turn higher

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with the season and Peak about 3% above

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the 2022 number the all-time high in Q2

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uh in a in a few months but we're going

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to keep watching this over the next

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several weeks of course just in case the

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median price of all the homes on the

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market in the US

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is now

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$429,000 that's up almost 1% from a week

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ago and is a couple percent higher than

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2023 at this time the this chart is of

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home prices over time and the dark red

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line here is uh the median price of all

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the homes on the market across the

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country at any given moment the median

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price of the new listings this week is

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$410,000 that's a pretty big jump from

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the week prior the bright red line here

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can jump big week to week it can do that

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but uh you'd expect both lines to be

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climbing generally for the spring the

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dotted lines here help you see how much

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the mark the market is just slightly

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above last year at this time you can

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also see the all-time high prices for

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June of

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22 uh home prices are up over last year

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U but they are not accelerating

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particularly quickly that's the

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softening I've been talking

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about uh so it'll be interesting to see

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if we pass that Peak from two years ago

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at elos we do not we do not seasonally

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adjust the numbers like this is the

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price of all the homes if you walk into

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the market today and look around this is

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what you can buy the median price of

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single family homes in the US is $429

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,000 right now uh I've so I've shared a

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few signals for home prices softening

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and I use the word softening to be

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distinct from falling or declining home

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prices are up over last year and do not

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show any signs of declining in

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2024 but in February of stronger home

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price appreciation years we can see

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these leading indicators pointing up and

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you know at alos we track the active

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housing market all the asking prices all

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the changes in those prices and so that

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we can see where sales will happen in

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the

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future looking at the far right end of

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the chart here you can see the data for

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the most recent weeks and the the

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steeper those are climbing each week

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then the greater the home price

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appreciation will be for the whole year

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uh and what we can see now is it's not a

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very steep climb so you can see uh an

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example of the really steep climb two

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years ago at the tail end of the

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pandemic boom uh buyers were squeezing

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in before mortgage rates Rose and those

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buyers were bidding home prices higher

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each week that is not happening now even

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last year the slope of these pricing

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lines was steeper so last year ended

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with three to 7% home price increases

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depending on which index you use in

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February the of last year the data was

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showing the the surprising leading

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indicators so this point last year they

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were they were moving more steeply and

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now the data is is notably softer so

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we'll obviously be the first to point it

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out if the home price signals turn

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negative which they could if mortgage

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rates jump into the upper sevens or 8%

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again like that's something to keep a

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watch out for it can be really hard to

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communicate all this with buyers and

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sellers these uh there are folks on the

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sidelines who are waiting for rates to

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drop so they can swoop in for sudden

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bargains they may not realize that how

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much competition is waiting right along

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with them and meanwhile mortgage rates

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are actually Rising so if you need to

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help buyers and sellers see the actual

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data you should join us at elos go to

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alos research.com and book a free

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consult with our team we will help you

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know how to talk about the market with

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your clients and Prospects today there's

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a link in the description below to join

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us click that and let's get

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started