Part 1: Current State of the Housing Market; Overview for mid-February 2024
CALCULATEDRISK
By Bill McBride
This 2-part overview for mid-February provides a snapshot of the current housing market.
Let’s talk house prices, sales, inventory, mortgage rates, rents and more!
I always like to start with inventory, since inventory usually tells the tale!
New Listings for Existing Homes Up Year-over-year in January
Here is a graph of new listing from Realtor.com’s January 2024 Monthly Housing Market Trends Report showing new listings were up 2.8% year-over-year in January. This is just a slight increase from the record low for January set in 2023.From Realtor.com:
Providing a boost to overall inventory, sellers turned out in higher numbers this January as newly listed homes were 2.8% above last year’s levels. This marked the third month of increasing listing activity after a 17-month streak of decline, however this month’s improvement is lower than last month’s 9.1% growth rate.
Note the seasonality for new listings. December and January are seasonally the weakest months of the year for new listings. It seems very likely that new listings will be up year-over-year in 2024, but we will have to wait for the March data to see how close new listings are to normal levels.
Impact on Active Inventory
The following graph shows the seasonal pattern for active single-family inventory since 2015 through February 9, 2024, from Altos Research. The red line is for 2024. The black line is for 2019.
Note that inventory is up 99% from the record low for the same week in 2022, but still well below normal levels.
Inventory was up 11.4% compared to the same week in 2023 (last week it was up 8.7%), and down 39.1% compared to the same week in 2019 (last week also down 39.1%).
Back in June 2023, inventory was down almost 54% compared to 2019, so the gap to more normal inventory levels has closed a little.
New Home Inventory Under Construction Remains Elevated
For new homes, there are almost 5 months of homes under construction (blue line below) – well above the normal level. There are 1.5 months of completed supply (red line). This is close to the normal level.
New home inventory is close to a record percentage of total inventory. 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.
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 25.7% of the total for sale inventory, down from 27.2% in December 2022. The percent of new homes of total inventory should decline this year as existing home inventory increases in 2024.
Note that the lack of existing home inventory, and few distressed sales, has been a positive for homebuilders.
And for housing starts there are a nearrecord number of multi-family housing units under construction, and a near record 1.679 million total units under construction.
Red is single family units. Currently there are 671 thousand single family units (red) under construction (SA). This was down in December compared to November, and 160 thousand below the recent peak in May 2022. Blue is for 2+ units. Currently there are 1,008 thousand multi-family units under construction. This is slightly below the record set in July 2023 of 1,018 thousand.
Combined, there are 1.679 million units under construction, just 31 thousand below the all-time record of 1.710 million set a year ago in October 2022.
Sales
The NAR reported sales were at a “seasonally adjusted annual rate of 3.78 million in December. Year-over-year, sales declined 6.2% (down from 4.03 million in December 2022).” This was close to the local markets I tracked for December.
This was a new cycle low for existing home sales. Early local market data suggests sales could be up year-over-year in January. If sales increased YoY in January, this will be the first YoY increase since August 2021 (following 28 consecutive months with a YoY decline in sales).
And the Census Bureau reported “Sales of new single‐family houses in December 2023 were at a seasonally adjusted annual rate of 664,000”, up 4.4% YoY from December 2022.
New home sales bottomed in July 2022. New home sales are holding 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.
2024 Outlook
In December I posted some questions on my blog for 2024: Ten Economic Questions for 2024. Some of these questions concern real estate (inventory, house prices, housing starts, new home sales), and I’ve posted thoughts on those in the newsletter.
So far, the outlook remains the same: Existing home inventory will likely increase in 2024 but remain well below normal levels. Multi-family starts will likely decline further – although completions will increase.
“My guess is multi-family starts will decline further in 2024, likely down 25% or so year-over-year. Single family starts will likely be mostly unchanged year-over-year, putting total starts down close to 10%. I expect New Home sales to be up around 5% YoY.”
“Somewhat lower mortgage rates – and time – will likely lead to more new listings in 2024. Still, mortgage rates will remain well above the pandemic lows, and therefore new listings will be depressed again in 2024.
The bottom line is inventory will probably increase year-over-year in 2024. However, it seems unlikely that inventory will be back up to the 2019 levels.”
In Part 2, I’ll discuss mortgage rates, house prices, rents and more.
