CALCULATEDRISK

By Bill McBride

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

I always focus first on inventory, since inventory usually tells the tale! I’m watching months-of-supply closely.

New Listings for Existing Homes Up Slightly Year-over-year in November

Here is a graph of new listing from Realtor.com’s November 2024 Monthly Housing Market Trends Report showing new listings were up 2.0% year-over-year in November. New listings are still well below pre-pandemic levels.From Realtor.com:

Sellers continued to increase their activity this November as newly listed homes were 2.0% above last year’s levels, a sharp decrease from October’s rise of 4.9%. We noted last month that the sharp decrease in mortgage rates 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, and that’s exactly what happened in September and October. But with higher rates taking a bite out of homebuying power, fewer new sellers are coming to the market than the two months prior.

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.

Impact on Active Inventory

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

Inventory was up 26.2% compared to the same week in 2023 (last week it was up 27.1%), and down 16.8% compared to the same week in 2019 (last week it was down 17.2%).

The gap to more normal inventory levels is closing!

And here is a monthly graph of active inventory from Realtor.com. In November, active inventory was up 26.2% year-over-year.

Since both inventory and sales have fallen significant, a key for house prices is to watch months-of-supply. The following graph shows months-of-supply since 2017. Note that months-of-supply is higher than the last 5 years (2019 – 2023) and 2017, and close to 2018 levels. 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 5 Months of New Home Unsold Inventory Under Construction

For new homes, there are 5.2 months of homes are under construction (blue line below) – generally declining, but still well above the normal level. There are 2.2 months of completed supply (red line). This is above 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).

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 21.6% 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 continue to decline as existing home inventory increases.However, the percent of new home inventory will increase seasonally over the Winter as existing homes are withdrawn from the market.

And for housing starts there are still a large number of multi-family housing units under construction, and 1.465 million total units under construction. However, multi-family housing units under construction is now declining.

Red is single family units. Currently there are 644 thousand single family units (red) under construction (SA). This was up unchanged in October compared to September, and 186 thousand below the pandemic peak in May 2022. Blue is for 2+ units. Currently there are 821 thousand multi-family units under construction. This is 200 thousand below the record set in July 2023 of 1,021 thousand.

Combined, there are 1.465 million units under construction, 246 thousand below the all-time record of 1.711 million set in October 2022 and the fewest since October 2021.

Sales

The NAR reported sales were at a “seasonally adjusted annual rate of 3.96 million in October.” As expected, existing home sales were up year-over-year for the first time since 2021. This was a combination of weak sales in October last year and lower mortgage rates in August and September when contracts were signed (Existing home sales are reported at closing).

NOTE: Existing home sales will be up again year-over-year in November. This will be the second year-over-year gain since July 2021 (last month was the first).

And for new home sales, the Census Bureau reported “Sales of new single-family houses in October 2024 were at a seasonally adjusted annual rate of 610,000”, down 9.4% YoY from October 2023.

Important: Sales in October were impacted by the hurricanes. The south region was down 27.7% year-over-year (“South” includes Florida, the Carolinas and Georgia – states hit hardest by hurricanes Helene and Milton). Excluding the South, sales were up about 8% year-over-year.

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 review house prices, rents, mortgage rates, and more.