Part 1: Current State of the Housing Market; Overview for mid-November

CALCULATEDRISK

By Bill McBride

In this 2-part overview of the housing market for mid-November, I’ll discuss new and existing home inventory and sales, house prices, mortgage rates, rents and more.

Year-over-year Decline in New Listings

Here is a graph of new listing from Realtor.com’s October 2023 Monthly Housing Market Trends Report showing new listings were down about 3.2% year-over-year in October. The year-over-year decline has been shrinking, mostly because new listings collapsed in the 2nd half of 2022. From Realtor.com:

Newly listed homes were 3.2% below last year’s levels, improving from a decline of 9.1% in September. While listing activity declined seasonally, the count of newly listed homes in October only dropped by 2.6% compared to September, compared to an average of 5.8% since 2017. Nevertheless, high mortgage rates continue to impact selling activity as homeowners feel ‘locked-in’ to previously low rates.

For the local markets I track that have reported so far, are show new listings were down significantly less year-over-year than earlier in the year.

For these areas, new listings were down 10.7% YoY. Potential sellers that are locked into their current homes with low mortgage rates has pushed down new listings.

Last month, new listings in these markets were down 18.2% YoY. The YoY decline in new listing has been getting smaller, mostly because new listings collapsed a year ago as mortgage rates increased.

Based on the recent trend, it is likely new listings will be up YoY soon, but still at historically low levels.

Impact on Active Inventory

The following graph shows the seasonal pattern for active single-family inventory since 2015 from Altos Research. The red line is for 2023.  The black line is for 2019.

Inventory was down 1.5% compared to the same week in 2022 (last week it was down 2.7%), and down 37.1% compared to the same week in 2019 (last week down 39.4%).  

In 2022, inventory peaked at the end of October (the latest in the year inventory had peaked until this year). I now expect inventory to be up YoY soon.

Inventory is now 4.4% above the same week in 2020 levels (dark blue line).

For new homes, there are 4 months of homes under construction (blue line below) – well above the normal level but declining. This elevated level of homes under construction is due to supply chain constraints. There are 1.2 months of completed supply (red line). This is close to the normal level.

Interestingly, new home inventory is close to a record percentage of total inventory.

This 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 23% of the total for sale inventory. 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 1.676 million total units under construction.

Red is single family units. Currently there are 674 thousand single family units (red) under construction (SA). This was down in September compared to August, and 157 thousand below the recent peak in May 2022. Blue is for 2+ units. Currently there are 1,002 thousand multi-family units under construction. This is slightly below the record set two months ago of 1,018 thousand.

Combined, there are 1.676 million units under construction, just 34 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 3.96 million in September. Year-over-year, sales dropped 15.4% (down from 4.68 million in September 2022).” This was in line with the local markets I tracked for September.

This was a new cycle low for existing home sales.

Usually, house prices bottom after sales bottom, so a new cycle low for sales suggests likely further weakness for house prices in coming months. I’ll have more on this pattern.

And the Census Bureau reported “Sales of new single‐family houses in September 2023 were at a seasonally adjusted annual rate of 759,000”, up 33.9% YoY from September 2022.

New home sales have likely bottomed although the recent spike in mortgage rates is impacting sales. 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 3-2-1 mortgage rate buydowns (the home builders buy down a 7% mortgage to 4% the 1st year, 5% the 2nd, and 6% the 3rd year). However, the home buyers still must qualify at the current fully amortized rate.

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