Altos Research: Homebuyers defy expectations

This week, the available inventory of homes for purchase fell by a lot. In 2023, the demand for homes has outstripped the number of sellers willing to sell. According to data, enough homebuyers can afford homes at these prices and these mortgage rates. Buyers are aware that if rates fall in the future, they can refinance later. Buyers can also see that if rates rise in the future, they are already in the best possible position.
[embedded content]
The inventory of homes for sale continues its decline. It is not common for inventory to fall in February. It was common for inventory to rise in February prior to the COVID-19 pandemic. This was because spring home sellers started listing their homes and buyers weren’t yet out. However, inventory did not reach its peak until much later in spring 2020-2022 because buyers were quick to come out after the new year.
Our models predicted that inventory would reach a halt in January 2023, and then increase by 1-2% per week by February 2023 after the fall of 2022. Inventory fell by 3% this week. This is a significant decrease. This week, there were far more sellers than buyers. Only 443,000 single-family homes are currently on the market in the entire country.
You can see the steep decline over the last few weeks on the right side. This chart has 2019 highlighted. It shows that there were 814,000 homes for sale. The inventory had begun to rise for the year, which is how it used to behave. There are now 46% fewer homes available than in 2019. We began the year expecting to see inventory levels return to their previous normal levels, but the data continues to defy all expectations.
It would be wrong to assume that this’spring market surprise’ is driven only by demand. While there is demand, this is really a story about supply. The number of homes for sale in the United States is at an all-time low. There are very few new listings each week.
58,000 single-family homes were on the market this week. This is 13% less than the 2022 number. You’d be surprised each week if you thought inventory would rise because of a panicked investor or a fearful economy. Americans are retaining their 3% mortgages. They aren’t eager to sell their homes.
Each bar represents the number of new listings per week. The homes that were sold within a week of listing are the lightest parts of the bar. Although rates were starting to rise in 2022, they were still within the 3% range. We had bidding wars, and high levels of demand. As you can see, the light portion of last year’s bar was much larger. This week, we had 13,000 sales, compared to 22,000 in 2022. Although the total new supply is lower, urgent demand is also lower, overall demand is still enough to keep the inventory shrinking each week.
This supply-demand equation can be seen in the price reduction data. This week, price cuts were only 32.2%. 32% of homes on the market recently saw their prices drop. This is completely normal.
The chart below shows that each line represents a year. The year’s dark-red line is rapidly falling. It could fall to below 30% in just a few weeks if it continues at this rate. This would be a remarkable market turnaround since last fall. You can see how quickly the light-red line rose in 2022. Today’s market is not as crazy today as it was last year, when only 18% took price cuts. It’s now 32%, but it is tightening quickly.
The chart below shows that home sales are on the rise. In 2022, there were very few transactions. However, the number of pending sales is increasing rapidly each week. The number of single-family homes under contract in the U.S. is now 291,000, which is 23% less than in 2022. This was the hottest market in America last year. Last year, we had more homes under contract than there were homes available for purchase!
This week, there were 13,000 new pending orders. This is only 9% less than 2022. This trend suggests that the sales gap will continue to shrink. Although there are still fewer sales, things are much better than the fall market.
All of this is shown in the price trends data. As you would expect, home prices are slowly rising after the holiday lows. The median single-family home value in the US is currently $418,200. This is a slight increase from last week.
It is important to note that none of the leading indicators in the pricing data are particularly strong. The price of all new listings this week — all homes that were listed in the last week — is the same as it was 2022. Last year, demand was insane — you can see that the light-colored line in this chart was moving each week. The light-colored line is moving in the opposite direction this year.
The price of the new cohort is higher than the full active market. This leads to a rise in pending sales. As we see supply shrinking in the U.S., so we also see sufficient demand despite higher interest rates. Home prices aren’t being driven higher because of the affordability of these rates. At least, not yet. This week, mortgage rates rose. Next week’s data will show whether Americans are sensitive to these changes in costs.