CALCULATEDRISK
By Bill McBride
This 2-part overview for mid-May provides a snapshot of the current housing market.
I always like to start with inventory, since inventory 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 Up Year-over-year in March
Here is a graph of new listing from Realtor.com’s April 2024 Monthly Housing Market Trends Report showing new listings were up 12.2% year-over-year in April. New listings are still well below pre-pandemic levels.From Realtor.com:
However, providing a boost to overall inventory, which has been a drag on sales the past couple of years, sellers turned out in higher numbers this April as newly listed homes were 12.2% above last year’s levels, matching last month’s growth rate. This marked the sixth month of increasing listing activity after a 17-month streak of declines.
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 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).
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 be above 7%.
But time is a factor for this “want to sell” group, and eventually some of them will take the plunge. That is probably why we are seeing more new listings now.
Impact on Active Inventory
The following graph shows the seasonal pattern for active single-family inventory since 2015 through May 3, 2024, from Altos Research. The red line is for 2024. The black line is for 2019.
Note that inventory is up almost double from the record low for the same week in 2022, but still well below normal levels.
Inventory was up 33.1% compared to the same week in 2023 (last week it was up 31.8%), and down 36.8% compared to the same week in 2019 (last week it was down 35.9%).
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 April, active inventory was up 30.4% year-over-year.
As I noted last month, months-of-supply is important to watch, and it is possible months-of-supply will be back to 2019 levels later this year.
New Home Inventory Under Construction Remains Elevated
For new homes, there are almost 5 months of homes are 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 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 25.1% 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 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 near record number of multi-family housing units under construction, and a near record 1.646 million total units under construction. Multi-Family housing units under construction has peaked!
Red is single family units. Currently there are 689 thousand single family units (red) under construction (SA). This was up in March compared to February, and 142 thousand below the pandemic peak in May 2022. Blue is for 2+ units. Currently there are 957 thousand multi-family units under construction. This is 61 thousand below the record set in July 2023 of 1,018 thousand.
Combined, there are 1.646 million units under construction, 64 thousand below the all-time record of 1.710 million set in October 2022.
Sales
The NAR reported sales were at a “seasonally adjusted annual rate of 4.19 million in March. Year-over-year, sales waned 3.7% (down from 4.35 million in March 2023).” This was close to the local markets I tracked for March.
Early local market data for April suggests that the April existing home sales report might show a year-over-year increase following 31 consecutive months with a YoY decline in sales.
And the Census Bureau reported “March 2024 were at a seasonally adjusted annual rate of 693,000.”, up 8.3% YoY from March 2023.
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
So far, the outlook remains the same as I’ve state previously: 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.
In Part 2, I’ll discuss house prices, rents, mortgage rates, and more.