CALCULATEDRISK

By Bill McBride

This 2-part overview for mid-September provides a snapshot of the current housing market.

I always focus first on inventory, sinceinventory usually tells the tale! And currently inventory is increasing year-over-year but is still well below pre-pandemic levels.

New Listings for Existing Homes Down Slightly Year-over-year in August

Here is a graph of new listing from Realtor.com’s August 2024 Monthly Housing Market Trends Report showing new listings were down 0.9% year-over-year in August. New listings are still well below pre-pandemic levels.From Realtor.com:

Just like buyers, sellers pulled back this August as newly listed homes were 0.9% below last year’s levels and a reversal from July’s 8.4% gain. This breaks a nine-month streak of increasing listing activity. We think the sharp decrease in mortgage rates seen in mid-August could lead to an increase in listings in the coming months as lower rates begin to entice the marginal homeowner to sell.

Note the seasonality for new listings. December and January are seasonally the weakest months of the year for new listings, followed by February and November. New listings will be up year-over-year in 2024, but still well below normal levels.

There are always people that need to sell due to the so-called 3 D’s: Death, Divorce, and Disease. Also, in certain times, some homeowners will need to sell due to unemployment or excessive debt. Neither is much of an issue right now, except possibly in Florida with very expensive homeowner’s insurance (due to impacts from climate change), and special assessments for condo owners due to deferred maintenance.

And there are homeowners who want to sell for a number of reasons: upsizing (more babies), downsizing, moving for a new job, or moving to a nicer home or location (move-up buyers). It is some of the “want to sell” group that has been locked in with the golden handcuffs over the last couple of years, since it is financially difficult to move when your current mortgage rate is around 3%, and your new mortgage rate will around 6.15%.

But time is a factor for this “want to sell” group, and eventually some of them will take the plunge. And early data suggests new listings will be up year-over-year in September.

Impact on Active Inventory

The following graph shows the seasonal pattern for active single-family inventory since 2015 through September 6, 2024, from Altos Research. The red line is for 2024. The black line is for 2019.

Inventory was up 38.0% compared to the same week in 2023 (last week it was up 38.2%), and down 25.7% compared to the same week in 2019 (last week it was down 26.6%).

Back in June 2023, inventory was down almost 54% compared to 2019, so the gap to more normal inventory levels has closed a little.

And here is a monthly graph of active inventory from Realtor.com. In August, active inventory was up 25.8% year-over-year.

Since both inventory and sales have fallen significant, a key for house prices is to watch months-of-supply. As I mentioned in an early July interview with Lance Lambert at ResiClub:

“I expect this measure to continue to increase, and be over 4 months soon – and to be above 2019 levels in a few months. This doesn’t mean national price declines, but it suggests price growth will slow significantly later this year. We might see national price decline with months-of-supply above 5 (as opposed to 6) since most potential sellers have substantial equity and might be willing to sell for a little less.”

The following graph shows months-of-supply since 2017. Note that months-of-supply is higher than the last 3 years (2021 – 2023), and slightly below the 2017 – 2019 period. In 2020 (black), months-of-supply increased at the beginning of the pandemic and then declined sharply.

This suggests that year-over-year price growth will continue to slow. Inventory would probably have to increase to above 5 months of supply to see national price declines again.

In 2022, we saw some price declines at the National level even with fairly low months-of-supply – probably due to the sharp increase in inventory and some sellers panicking while remembering the housing bust!

Over 4 Months of New Home Unsold Inventory Under Construction

For new homes, there are 4.2 months of homes are under construction (blue line below) – declining, but still well above the normal level. There are 1.7 months of completed supply (red line). This is close to the normal level.

New home inventory, as a percentage of total inventory, is still very high. The following graph uses Not Seasonally Adjusted (NSA) existing home inventory from the National Association of Realtors® (NAR) and new home inventory from the Census Bureau (only completed and under construction inventory).

Note: Mark Fleming, Chief Economist at First American pointed this out in March 2023.

It took a number of years following the housing bust for new home inventory to return to the pre-bubble percent of total inventory. Then, with the pandemic, existing home inventory collapsed and now the percent of new homes is 21.4% of the total for sale inventory, down from a peak of 27.2% in December 2022.

The percent of new homes of total inventory should decline as existing home inventory increases in 2024.

And for housing starts there are a large number of multi-family housing units under construction, and 1.539 million total units under construction. However, multi-family housing units under construction has peaked.

Red is single family units. Currently there are 653 thousand single family units (red) under construction (SA). This was down in July compared to June, and 177 thousand below the pandemic peak in May 2022. Blue is for 2+ units. Currently there are 886 thousand multi-family units under construction. This is 135 thousand below the record set in July 2023 of 1,021 thousand.

Combined, there are 1.539 million units under construction, 172 thousand below the all-time record of 1.711 million set in October 2022.

Sales

The NAR reported sales were at a “seasonally adjusted annual rate of 3.95 million in July. Year-over-year, sales fell 2.5% (down from 4.05 million in July 2023).” This was close to the local markets I tracked for July.

And for new home sales, the Census Bureau reported “Sales of new single-family houses in July 2024 were at a seasonally adjusted annual rate of 739,000”, down 5.6% YoY from July 2023.

New home sales bottomed in July 2022 and new home sales have held up better than existing home sales due to the lack of existing home inventory and the lack of distressed sales this cycle – and new home builders are using various tools to attract buyers such as mortgage rate buydowns.

A key for house prices will be to watch existing home months-of-supply!

In Part 2, I’ll discuss house prices, rents, mortgage rates, and more.