More Sellers, Fewer Buyers

Summary

In 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

• 🔴 Price reductions increased for the first time since November due to rising mortgage rates and growing inventory.
• 📈 Inventory across the country is on the rise, contributing to a decrease in home buying affordability.
• 🕐 Sales pace has slightly decreased, highlighting the impact of higher mortgage rates on slowing home buyer demand.
• 📲 Mortgage rates are about 100 basis points higher than last year, leading to more inventory and softer future sales price indicators.
• 📉 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.
• 📊 Mortgage rates in the 'sevens' or higher could significantly affect home prices, continuing the trend of softening growth signals.
• 📄 Mike Simonson from Altos Research emphasizes the importance of tracking real-time data on pricing, supply, demand, and sales changes for accurate market analysis.
• 🛠 Inventory has increased by 16% compared to last year and is 53% higher than two years ago, correlating with higher mortgage rates.
• 🔧 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.
• 📆 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

😕 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

📉 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.

Keywords

💡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.

💡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.

💡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.

💡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.

💡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.

💡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.

💡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.

💡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.

💡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.

💡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

price reductions ticked up this week for

the first time since November in the

face of rising mortgage rates inventory

is rising across the country too as home

buying affordability takes another hit

the pace of sales inch down this week

also so we can see exactly the impact of

higher mortgage rates slowing home buyer

demand as demand slows inventory grows

last year at this time we are actually

seeing surprising home buyer Demand with

rates having fallen into the low sixes

now mortgage rates are roughly 100 basis

points higher and as a result the uh

inventory is higher and the future sales

price indicators are also softer than

they were a year

ago we still see more sellers than last

year so each week there are more new

listings than a year ago allowing

inventory to build and eventually

leading to to more home sales this year

than last but that sales growth rate is

fragile

too if mortgages stay in the sevens or

keep climbing from here you can you can

see exactly what's uh going to happen to

home prices a week ago I mentioned that

some of the home price signals were

softening home prices aren't falling uh

but the growth signals are definitely

softening and that that Trend continues

this week uh the the housing market has

been changing very very rapidly this

year the economy has continued to be

strong so mortgage rates have defied

expectations and climbed higher that's

uh why at altoos research we track every

home for sale in the country every week

you can't just rely on the expectations

of what's going to happen we track all

the pricing all the supply and demand

all the sales all the changes in that

data and we make it available to you

immediately as it happens I'm Mike

Simonson I'm the founder of alos

research and let's take a look at the

details of the US real estate market for

the end of February

2024 so there are now

498,000 single family homes available

unsold on the market around the US

that's 70 basis points more than last

week and 16% more than last year at this

time so this is the first inventory

increase of the year the market will

continue to build unsold inventory from

here for for the rest of the season

there's nothing in the data that shows

inventory declining from here this

spring uh so uh you could get a little

bounce up or down but the trend is quite

clear mortgage rates are like I said

roughly 100 basis points higher than

last year at this time and inventory is

16% more rates are 400 basis points

higher than two years ago and inventory

is

53% higher higher rates creates more

inventory many uh mortgage rate

forecasters are still expecting a rate

reversal but until that actually comes

to fruition we will watch higher

mortgage rates drive up the available

selection of of unsold homes on the

market in this inventory chart you can

see this phenomenon we've shaded the red

periods for Rising mortgage rates and

the green for the periods when rates

fell uh we are now two years from the

low of mortgage rates and from the low

of inventory they both turn the corner

at the same time if we have another year

or two with rates in the sevens or or

higher we we should finally get back to

those old normal levels of inventory and

you can see how inventory is still a

third fewer than it was available in

2019 but it keeps climbing inching its

way closer every week that rates stay

elevated we've been sharing how the

sales rate has been trying to expand for

2024 unfortunately Rising mortgage rates

have not been cooperating so last week

showed good sales growth over 2023 and

uh I mentioned that it might be fleeting

and sure enough the number of new

contracts started this week dipped just

a little bit with

59,000 uh new single family home sales

started this week that's 2% fewer than

last week and it's just a fraction fewer

than the same week in

2023 uh any week where we have negative

sales growth from last year is a

disappointment at this at this point but

uh this is where you see affordability

and demand take a hit from higher

mortgage rates in this chart we're

showing uh all the homes that get offers

and go into contract uh the contract

pending stage in a given week these new

contracts pending are are shown here in

in curves for each of the last couple of

years the dark line at the Left End of

the chart is uh that's this year trying

to expand over 2023 and 2023 is really

restricted rate of sales uh but of

course affordability has not been

cooperating in the last uh six weeks or

so so I still suspect but that by

mid-march we'll see consistent sales

growth over last year the dark red line

will be generally above the the red line

of last year's rate uh at the time a

year ago the market was facing

dramatically restricted inventory now uh

buyers have more selection so that cap

on total transaction volume is lifted so

of course economic data uh like

unemployment for example keep coming in

very strong and so if mortgage rates

rise from here then home sales will drop

quickly and so you can see you'll see

this the dark red line here you start to

just not separate from the the brighter

Red Line curve from last year I think by

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

is important to note that we can have

rising in inventory and Rising sales at

the same time which is actually what I

expect the I just wish the the sales

rate were were climbing more quickly

more reliably each week would be nice to

see uh perhaps the most notable signal

this week is price cuts the percentage

of homes that uh have reduced their

asking price from the original price it

that ticked up this week so there are

now there are now 30.4% of the homes on

the market that have taken a price cut

that's up from 30.0% last week uh every

year has a cycle in price reductions

that after the holidays of fresh new

inventory gets listed so the percentage

that have taken a price cut declines

then in the spring some of that

inventory is still sitting on the market

so those sellers start cutting their

asking prices then later in the year

price Cuts accelerate as the summer

comes to a close and a peak just before

the holidays to start the cycle again in

the Years uh the pre PR pandemic years

uh this end of February time is actually

a normal time to start seeing an uptick

in price Cuts some of the boom years

though with all those crazy bidding wars

it took till much later in the spring

for the price cuts to actually inch back

into the trend so in this in this chart

each line is a year and you can see the

cycle very quick clearly the this is uh

this year is notable in that price Cuts

ticked up this week which is the first

time since before the Pand mic to start

to look like that old normal Market

Behavior so we're in the normal range

though of price reduction is that normal

zone is that's the gray band across the

chart here uh this meaning that sellers

are generally fine they're generally

getting their their prices there's no

signal of prices falling in this data

the uptake just shows us slowing

momentum uh in a couple of weeks though

we could be behind the pace of last year

meaning more sellers with price Cuts

than a year ago go last year at this

time we were seeing surprise surprising

home buyer Demand with rates in the low

sixes and so now rates are higher we see

the opposite Trend happening if we see

this year's line curve towards the top

of the gray band like quickly that would

be an indicator the next indicator of

home price weakness so we'll see it tick

up above last year but uh probably not

to the top of the uh that gray band

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

catastrophic call for home price it is

simply very clear evidence of how home

buyers wait when mortgage rates stay

higher for

longer uh the the uh price of the homes

that went into contract this week dipped

a little bit too which was interesting

to note the median price of the newly

pending single family home sales uh was

$375,000 this week that's down from

378,000 last week almost a 1% dip uh

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

uh it is normal to have a little bit of

noise in the pending prices you can see

a little up and down across the year but

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

is maybe unusual in this key part of the

buying season to see a down tick week

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

one little tick uh this chart of home

prices going in this is home the prices

of homes going into contract it can be

very telling about demand the pink line

here from uh you can see from 22 had

sharp down moves in July and again in

October 22 uh this was the market

responding to those big jumps in

mortgage rates at the time so when the

prices on the new contracts dipped in

the second half of 22 that led to

year-over-year sales price declines in

the first half of

2023 so these contracts are the first

indication for those sales that will

close right now in March and

April the uh this week's could just be a

little noise in the data like I said but

if it proves persistent that would be a

very big signal

indeed uh we will keep watching the uh

dark red line here if it if it dips

further you can be sure that I will

highlight it for you uh prices dipped

this week but are still up over 2023 I

expect the dark R line to turn higher

with the season and Peak about 3% above

the 2022 number the all-time high in Q2

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

to keep watching this over the next

several weeks of course just in case the

median price of all the homes on the

market in the US

is now

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

ago and is a couple percent higher than

2023 at this time the this chart is of

home prices over time and the dark red

line here is uh the median price of all

the homes on the market across the

country at any given moment the median

price of the new listings this week is

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

the week prior the bright red line here

can jump big week to week it can do that

but uh you'd expect both lines to be

climbing generally for the spring the

dotted lines here help you see how much

the mark the market is just slightly

above last year at this time you can

also see the all-time high prices for

June of

22 uh home prices are up over last year

U but they are not accelerating

particularly quickly that's the

softening I've been talking

about uh so it'll be interesting to see

if we pass that Peak from two years ago

at elos we do not we do not seasonally

adjust the numbers like this is the

price of all the homes if you walk into

the market today and look around this is

what you can buy the median price of

single family homes in the US is $429

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

few signals for home prices softening

and I use the word softening to be

distinct from falling or declining home

prices are up over last year and do not

show any signs of declining in

2024 but in February of stronger home

price appreciation years we can see

these leading indicators pointing up and

you know at alos we track the active

housing market all the asking prices all

the changes in those prices and so that

we can see where sales will happen in

the

future looking at the far right end of

the chart here you can see the data for

the most recent weeks and the the

steeper those are climbing each week

then the greater the home price

appreciation will be for the whole year

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

very steep climb so you can see uh an

example of the really steep climb two

years ago at the tail end of the

pandemic boom uh buyers were squeezing

in before mortgage rates Rose and those

buyers were bidding home prices higher

each week that is not happening now even

last year the slope of these pricing

lines was steeper so last year ended

with three to 7% home price increases

depending on which index you use in

February the of last year the data was

showing the the surprising leading

indicators so this point last year they

were they were moving more steeply and

now the data is is notably softer so

we'll obviously be the first to point it

out if the home price signals turn

negative which they could if mortgage

rates jump into the upper sevens or 8%

again like that's something to keep a

watch out for it can be really hard to

communicate all this with buyers and

sellers these uh there are folks on the

sidelines who are waiting for rates to

drop so they can swoop in for sudden

bargains they may not realize that how

much competition is waiting right along

with them and meanwhile mortgage rates

are actually Rising so if you need to

help buyers and sellers see the actual

data you should join us at elos go to

alos research.com and book a free

consult with our team we will help you

know how to talk about the market with

your clients and Prospects today there's

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