HousingWire

The leading indicators point to home price weakness even if the contemporaneous measures haven’t yet started receding.

By Mike Simonsen

The last week of June is really the peak of the homebuying season. Activity and prices typically start their seasonal decline very closely tied to the transition into the third quarter of the year. This coming week includes the July 4 holiday, which falls on Thursday, so the coming data will have a dip across the board. Inventory, new listings, etc. all dip over Independence Day, and the second half of the year curves lower. We’re at the crest now and today we’ll take a look at the view from the summit. What can we see for the rest of 2024?

Home prices are unchanged this week. New listings volume peaked a few weeks ago. While there won’t be a big drop off for new listings in July, we can assume we’ll have fewer sellers each week through the rest of the year. 

Home prices will probably dip after next week. The seasonal peak of home prices is usually June 30. 

Because homebuyer demand is slow this year, available inventory of unsold homes will continue to climb through the end of Q3. So, even as new listings taper off and prices ease back down, the unsold inventory count grows for a few more months. 

Let’s look at the details of the U.S. housing market as we’re now in the second half of the year.

Inventory up 1.8% for the week

There are now 646,000 single-family homes unsold on the market around the U.S. That’s up 1.8% for the week, and 39% greater than last year. That’s an increase of 11,000 unsold homes for the week which is a pretty big gain. It’s a little more than we projected for the week, and I think it illustrates continued, soft homebuyer demand. It seems quite likely that inventory will continue to expand until October. In years before the pandemic, inventory would have peaked in August, but it seems like that seasonality has shifted later in the year now. This is especially true if mortgage rates keep pushing higher, which it looks like they are now. Higher rates creates more inventory.

As we look at inventory for the rest of the year, expect that the market will peak in October with roughly 700,000 single-family homes in unsold inventory. We may end the year with roughly 20% more homes on the market than at the end of 2023. Last year, we had a late-year surge of inventory growth when mortgage rates pushed over 8% in October last year. If we have another surge in rates, we’ll end 2024 with 30% or 40% more homes on the market than the previous year.

New listings slow

There were just under 71,000 new listings of single-family homes unsold this week. That’s down 1.5% from a week ago. Add in the 15,000 immediate sales and that totals 86,000 sellers, which is not very many. It’s 8% more than last year at this time, but it’s not a lot. Plus, it’s not climbing. 

There won’t be a big drop-off in new listings volume in July. We could see another couple weeks with 70,000 or more new listings unsold. There haven’t been any signs of sellers accelerating.

The question is: How rapidly do the sellers pull back? It’s helpful to compare this year to 2022 and 2023. In 2022, inventory was really jumping at the end of June – that was accelerating sellers and slowing buyers. Both were happening. But after July 4, 2022, the sellers pulled back and suddenly the inventory imbalance was a lot more balanced.

In 2023, the sellers stayed away all year. That seller drought was the biggest story of 2023. Now, we’re getting elements of both trends. If this market is going to get fully out of whack, it would need more sellers hitting each week, and we just don’t see it. Inventory is building because of demand weakness. 

If you’re of the view that the housing market will get hit again with supply when people lose their jobs — that finally we’ll see seller growth once a recession hits — that may be true. Two things to keep in mind: The data doesn’t show that now and there aren’t any distressed sellers yet. 

Pending home sales slightly down

There were 67,000 new contracts started for single-family home sales this week. That’s a fraction fewer than last week and basically unchanged from a year ago. So, even as new listings volume isn’t growing, neither is the sales volume. There is very little encouraging in the demand side of the data now. 

What’s this mean for the rest of the year? It means that home sales levels will stay around this 4 million annualized rated. This sales rate is a lot lower than I expected at the beginning of the year, and that’s a function of mortgage rates staying higher for longer. 

Home prices may track lower in the next few weeks

The median price of the home sales that started this week is $395,000. This is the price where people are buying homes. Home prices peak in June, so you should expect this number to track lower in the next few weeks and months. The question is how steep is this curve decline in the second half of the year. Two years ago, we were seeing rapid deterioration in home prices as mortgage rates spiked.

Meanwhile, the median price of all the homes in the U.S. is $455,000. That’s unchanged from last week and from last year. With this measure, Altos simply counts every home for sale in the country and takes the median price of those. As a leading indicator of future sales prices, the asking price is stable but has not started declining. I keep expecting it to do so, at least a little bit.

The median price of the new listings this week was $429,000 that ticked up for the week and is nearly 4% higher than last year. New Listings prices will drop with the July 4th holiday and then generally recede for the rest of the year.

Price reductions are climbing

As mortgage rates stay elevated, homebuyer demand remains soft. As a result, price cuts are still climbing around the country. Some 38% of the homes on the market have taken a price cut from the original list price. That’s 70 basis points more than last week. It’s pretty high, though not disastrously high. It’s rising pretty quickly though not disastrously fast.

At this point in 2022, when mortgage rates were first rising quickly, price reductions were also jumping at a pace of 140 or 150 basis points each week. Right now, they’re rising by 50-70 basis points each week. That 2022 run-up led to home price declines in Q1 2023. The run-up now is softer but still real. 

When we look to the future based on what we can see here, I expect flat home price appreciation in the second half of the year. It’s hard to make this call, because many of the price measures, like the pending sales prices above, haven’t started compressing yet. I expect them to, but they haven’t.

But that’s what we’re looking for in the second half of the year. These leading indicators point to home price weakness even if the contemporaneous measures haven’t really started receding yet. Keep your eyes on this data!

A true data geek, Mike founded Altos Research in 2006 to bring previously unavailable insights on the US housing market to those who need it. The company now serves the largest Wall Street investment firms, banks, and tens of thousands of real estate professionals around the country. During the pandemic, Mike used Altos Research data to identify trends in the real estate market well before the headlines, and his work was recently featured in the New York Times, The Atlantic and other publications. Mike was also the 2020 president of the San Francisco Chapter of the Entrepreneurs’ Organization, a group in which he gets to lead and learn from hundreds of the most exciting entrepreneurs in the world.