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Two months into 2023, Altos is reporting remarkably resilient home-buying activity. However, this does not change the view that national home prices will remain flat to slightly down. The pricing data for 2023 will become more mature as it shows how quickly the prices of last year catch up to this year’s.
Inventory is still falling so the supply side in the supply/demand equation helps to set a floor on prices. This market is likely to remain tight throughout the year because there are so few homes available. While rising mortgage rates aren’t adding much inventory, they are keeping prices down. This creates a affordability problem.
Pricing
The most important data point right now is the trend in home prices. Nationally, home prices are higher at $420,000 than 2022. All this margin was achieved in March, April, and May 2022.
There are some markets where home prices are lower now than they were in 2022. There are a few markets, such as San Francisco, where prices are lower now than they were two year ago. However, home prices are still 6% higher than they were in 2022. Prices were climbing faster each week at that time as buyers fought for entry before mortgage rates rose. Our annual price gain is decreasing each week as a result.
The median price for single-family homes in the United States is $420,320. This is an increase of 2% from last week. This time of year, home prices rise rapidly due to new inventory and increased buyer demand. The red line is not indicating a higher sprint. The chart shows the low slope of appreciation at the far right. It appears that the market has reached a price ceiling.
Although buyers are buying more homes, the mortgage rate affordability issue is keeping prices down. Although prices will rise through June, they will be much slower than in previous years. This pace will see prices rise significantly below the June 2022 peak price.
The median listing price is $399,000, which is the same as 2022. New sellers are able to see the demand and can set a price that is very close to the eventual sale price. The 0% increase in year-over year new listing prices indicates 0% in year-over year future sales prices. This gives us a lot of data for the year. The percent change could be negative next week, as last year prices were still so high. This is the light-colored line at the chart.
It is also noteworthy that the median price for pending sales is $370,000. This data point has remained the same as 2022. The homes that are under contract but not yet sold are called pending sales. The pending sales price last year was slightly understated due to overbidding in the market. These pending sales will close at or below 2022 selling prices. The homes currently under contract will close in March or April. These headlines will be coming in the next few weeks. Year over year, home sales prices will fall.
However, sales prices are a poor indicator of the market. A home that is listed today gets an offer in March. It closes in April or may. You hear the data in June. Although it is true that sales headlines will begin reporting flat or down in a few month, I prefer to focus my attention on what’s happening in the market right now.
Inventory
The most important thing to notice right now is that the inventory of homes for purchase fell by 1.5% to just under 430,000. The data does not indicate that there will be a flood of new inventory. There are many theories about where future inventory might be coming from, but none of them is currently in the market. There is no supply-side catalyst to a major bubble-bursting correction, and home prices are falling.
Today, there are 60,000 fewer single-family houses on the market than there were at the New Year’s Weekend. We expected a continuation and increase in inventory in the 4th quarter. From that point on, our forecasting model predicted that there would be well over 500,000 single-family houses available. Every week, the data has shown the exact opposite. There are slightly fewer sellers than buyers.
There are more homes available now than in 2022, but 48% less homes are on the market right now than they were in 2019. Back then, there was 821,000 single-family homes available.
Inventory will fall for one week more before we reach mid-March. Spring inventory is coming. Even though mortgage rates have risen in recent weeks, the data has not shown an increase in inventory. There has not been a significant slowdown in buyers either, but enough to reverse the trend of 2023.
There are still fewer listings than in 2022, but they are decreasing each week. This week saw only 60,000 new listings, with 14,000 of them going into contract right away. There were 73,000 new listings in 2022, with 24,000 going into contract right away.
The chart below shows that each bar represents a week and the total number of new listings. This week’s bar is shorter than the 2022 one. There are 18% less new listings. The lighter portion of the bar is for homes that were in contract almost immediately after listing. This is what I mean by saying there is no sign of an inventory surge. The most bearish people on the U.S. housing markets insist that there will be a huge surge in inventory. This hasn’t happened yet. We’ll be the first to see it when it happens.
The chart’s right-hand side shows that the new listing rate is still very suppressed. In the next few weeks, data will reveal some March inventory, which should help the market. There were several weeks of big spikes that reached their peak at the end June in March 2022.
Inventory has risen dramatically in some markets, such as Phoenix, Texas, and Austin, Texas. In those markets, inventory levels are at 2019 levels. Inventory levels are still low in most of the country. Surprisingly, even in those markets, the current volume of new listings is very low. These markets are not growing inventory as they did last year. You are probably misinformed if you believe that rising inventory is a sign of a market collapse. You are looking at outdated data.
Pending Sales
The contract pending stage currently includes 319,000 single-family houses. This is a 4% increase over last week. However, this is 21% less than 2022 at the moment. This is a significant market difference of 21%.
This week’s trend continues to be a normal, seasonal rise with enough people purchasing the few houses for sale. We see a clear turnaround from the weak second quarter of 2022. Below is a chart showing the number of homes that have sales contracts pending for each week. The chart’s right-hand side shows steady growth from the low levels at the beginning of the year. This is what the data have shown each week. It’s quite different from, say, November 2022.
This week, there were 59,000 pending sales. This is a small portion of the total. As mortgage rates have risen over the past few weeks, there isn’t any sign of a slowdown in new pending sales. Despite the fact that mortgage purchase applications have fallen, there hasn’t been a significant drop in demand. Perhaps we have so little inventory that even though demand is down, the market is still supply constrained. It could be that we will not be able to measure 7% mortgage rates in the pending numbers for a while.
A rise in mortgage rates to close to 7 percent won’t cause a rush to buy. The pace of sales will remain well below that of 2022.
Price Cuts
If buyers are not in a hurry to buy, then homes on the market might need to be priced down. Price reductions have been slowing down as we’ve seen surprising levels of demand in the new year. A smaller number of homes require a price reduction. This week, the pace of price cuts slowed to a halt. 31.1% have had their prices cut. Imagine if a few homes saw rates rise and realized that no one was making an offer to them, and that they cut their prices this week. As rates rise, the price reduction curve is at its lowest point.
This year’s curve is higher than the previous years. Price reductions are another indicator of market uncertainty. However, it is slower than we have seen in recent years.
Next week: More