Altos: Is the housing market at its lowest point?
At the end of January, the available inventory of homes for purchase continued to decline. This is due to a combination of low inventory and increased buyer demand. Prices are stabilizing after falling in the fourth quarter due to low supply.
The question is, have we seen the bottom of the housing market? Or is this a temporary blip or a red herring before an inevitable recession hits?
Everybody has their own view, but here is the data as it stands right now. It is important to remember that most housing activity in the U.S. happens in the first quarter. If you were among those who held a bearish view on the housing market in 2023 then the early data is against you.
The state of the housing inventory
This week, the inventory of single-family homes fell to 466,000. This is a surprising result, but not uncommon in January. Pre-pandemic years, inventory was expected to bounce up and fall in each week of January before settling at the lowest point for the year in the first week. The spring buying season would see it rise again.
I had hoped that this year’s data would return more to pre-pandemic levels. Therefore, we would expect the inventory to drop next week, and then to rise steadily starting in February. The inventory hasn’t been moving this year. Instead, inventory has been declining each week.
A few weeks ago, we saw a slight increase in inventory. There are now fewer homes available than ever since June last year. The data shows that the inventory curve for spring 2023 is beginning to look more like the markets over the past two years. There are few sellers, but plenty of buyers to grab what little inventory is left.
Inventory is 71% higher than it was at its peak in 2022. Inventory continued to decline until the week of February 5, 2022. Inventory is still 37% below what it was in January 2020, just prior to the COVID-19 pandemic. Summary: Inventory is low and has not begun Spring climbing. There should be at least one week of decline.
However, inventory could continue to fall through February if it begins to look like the years of the COVID-19 Pandemic, 2020, 2021, and 2022. This would be a surprise.
Increase in pending home sales
As pending sales increase by 6% each week, we can see an improvement in demand. Pending sales refers to homes that are still under contract but have not closed a sale. Although there are 30% fewer pending contracts than last year, this gap is closing as the demand picks up after the ice-cold fourth quarter.
There were 35% fewer pendings than a year ago. These statistics show that more people are purchasing homes this spring. New pendings are up by 16% week-over-week.
This week, there are only 21% less homes under contract. The gap in sales between this year 2022 is closing. The last year’s sales rate was higher because everyone was trying to get the last 3% mortgage rate.
Each bar in this chart represents the total number of homes under contract each week. The new homes in contract are the lightest part of the bar, also known as the sales rate.
The sales rates are still slower than last year, when rates were still at 3.5%. Buyers knew this was their last chance. They aren’t trending down, but they are picking up each week.
If you’re a buyer looking for housing market chaos so you can get in on a great deal, there isn’t any evidence.
Home prices are climbing
Due to the high level of interest in homebuying and the limited supply of inventory, home prices rose by 1.2% to just under $415,000. It isn’t a lot of price strength. It isn’t skyrocketing. It’s not the same as last year. However, it’s not like last December when we expected home prices to fall.
It’s better to think of home prices as “sustaining” than rising or falling when we talk about home price stability. The median price for newly listed homes this week is $379,900, which is unchanged from last week. This is only slightly higher than last year.
The median price for those 264,000 homes is the same as last year. We see price stability but the year-over-2018 comparison is shrinking so the annual percentage change of home prices is flat or down for 2023.
Price reductions are eroding
The price reduction data also shows evidence of the demand. The number of homes that have price reductions is decreasing because there are so few buyers and there are so many buyers, it is hard to find homes. Only 33.9% have had their prices cut in the last year. Each line in this chart is one year. The chart shows 2023 at the left, with a steep down curve.
This trajectory is more like the COVID-19 years of pandemics than it is pre-pandemic years. The most price reductions occurred in 2019 because 2018 was a year with rising mortgage rates. This is the blue line.
As you can see, we are aiming down there right now. Although I doubt that prices will drop below 30%, home buyers are not likely to have the same opportunities. Multiple offers are a hallmark of the best properties. According to my experience, these offers are often close to the asking price. These are not bidding battles over asking.
This is a statistic I don’t often look into. The market is changing now, and the price increases are moving faster. These are homes that are now on the market that were previously available at a lower price. These homes are often fix-and-flips or investor activity. Each line is a year. If this number is higher, it means that there is more investor activity and therefore, more demand. Investors are sensitive sellers. Investors are sensitive sellers when this number falls.
In the face of falling demand, you can’t increase the price. Usually, about 3% of the market has experienced a price rise. These huge spikes are common during frenzy periods. Investors are flipping anywhere from 6% to 88% of the market during these spikes. The light red line abruptly changed in February 2022. Investors retreated. Investor buying stopped cold. This statistic, which shows the percentage of homes on the marketplace with price increases, could be interpreted as the first sign that the market has turned. We are now seeing price increases rise rapidly from the very low levels of last year.
The dark red line signifies that 2.4% of the market experienced a price rise. This is increasing steadily each week. To see the sustainability of the spring market, keep an eye on this pricing statistic.
The reality is that home buyers and sellers may have a different view of the spring housing market than what is actually happening. Are your potential sellers aware that buyers are already looking for homes? They need you to be their expert.
Altos Research’s president is Mike Simonsen.