Can data from the housing market tell us if there is a recession?

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All eyes are on the economy and the recent financial turmoil this week to see where the housing market is heading for the remainder of 2023. Consumer confidence to purchase homes is affected by the fact that bank troubles are not being contained. Altos Research is not a forecaster of the economy. We measure the housing market data. Although I don’t know the extent of the impact of bank failures, it seems like it could be very disruptive.
Housing demand in 2023 has been surprising strong up to now. Prices for homes fell across the country in late 2013, so they are down year-over-year. However, prices haven’t continued to decline since the beginning of the year. Although headlines should highlight home price drops, these changes are behind the Altos statistics. The current data shows that prices have not fallen further. However, buyers could be affected by big scary recessions, job loss or bank failures. We are already seeing some signs of this. These signs will be shown to you today.
Inventory appears to be at a tipping point and the market is poised to increase the number of homes for sale in the spring. This week, there are 414,000 single-family houses on the market. This is a slight increase from last week. Finally, there is an increase in inventory for spring market. It is the weekly view of inventory trends for this week. Each line below represents a year. It is easy to see how inventory rises and falls throughout the year. The 2023 year is represented by the dark red line. There are 67% fewer homes on the market right now than there were in 2022. After the record-breaking start to 2022, inventory began to rise very quickly in 2022’s second quarter. Inventory began to rise so quickly in May, June, and July.
We’re still amazed at the strength of the market in 2023. Data has shown that there have been very few listings per week and an increase of buyers. Inventory has been decreasing. We are about to see how quickly this market can change. Mortgage rates were at 6% in February and people were buying more houses than we expected. Recent weeks have seen rates rise to over 7%, which has definitely slowed down the market.
Last week, rates fell in response to bank failures. Lower rates are clearly better for home buyers but it’s difficult to see how bank failures will not increase buyers’ fear. The signals suggest that buyers will slow down after the surprising first 10 weeks.
This year-over-year inventory chart is useful to show whether we can get back to pre-COVID-19-pandemic levels of inventory any time soon. I predict that sellers will slow down as buyers slow down. There are 67% fewer homes on the market than in 2022. The light red line is 2022. This summer, the increase will be even tighter. Unless we are facing major economic turmoil. Although it doesn’t seem like a real risk, our models can’t predict the economy. Are there more bank failures? More job losses These risks are real. We’ll be able, just like in 2022 to see the effects on how quickly the supply charts change.
The median price of a single-family home in the United States is $429,000. This is a slight increase from the previous week, but this is what is expected for this time of the year. However, weekly price changes are much slower than in 2022. In the next few months, media headlines will focus on home price declines compared to last year. The slope at the right of the chart is lower than last year’s peak.
The median listing price is $400,000. This is a decrease of 1% from last year. This means that the prices of homes currently being listed are the same as in 2022. The market isn’t flooded with enough buyers to drive prices higher. The chart below shows a light red line moving sideways. Normally, the price of new listings rises each week in Q1. This data shows why headlines will start to show year-over-year price drops in the coming weeks. The sellers and listing agents believe they can get the best price from buyers, so houses are listed right now. These are future sales.
The weekly increase in pending sales is barely noticeable. The fastest indicator of sales is the pending sales. These are homes that are under contract. They spend at least a month before the sale closes. There are currently 329,000 single-family homes under contract. This is 21% less than 2022. This week, there was a dip in newly pending homes with only 47,000 single-family houses going under contract. This is 33% less than 2022.
Is this a one-week-long anomaly? Or is it a warning sign that consumers are worried about financial market turmoil and mortgage rates as high as 7%? It only lasts for a week so don’t get too excited about it. It’s worth keeping an eye on. Each bar in the chart below represents the total pending sales for that week. It’s up by 2% compared to last week but the lighter portion — the new pendings — is much smaller. It makes sense to be aware of how quickly homes are being sold. The economy is still strong, but there are signs of weakness. Home buyers will slow down if there is a recession. This pending sales trend chart will show that data very quickly.
Over the next few weeks, it will be interesting to see how the price of pending sales changes. We can track the pending sales properties and see the price ranges that people are buying between one and two months before the actual sale. This week, the median home price pending sale was $375,000. This number is unchanged since 2022. The chart below shows how the dark red line has followed the 2022 curve — it is the light red line. The 2022 prices will likely be significantly lower in the coming weeks. This chart does not capture bidding wars that occurred between 2022 and 2023, when the transaction price was often higher than the final list.
The ratio of the final asking and closed sale prices is generally very consistent across the country. While any home may be priced higher or lower than others, they are all very similar in general. The bidding wars in 2022 resulted in the final sales price being generally higher than the list. This data shows that homes under contract in the U.S. are selling at a lower price than last year. I believe that the dark red line for 2023, which is the price of 2022, will be below the light red line for 2023. I believe we will see steady year-over-year price drops across the country in the next few months.
What does this mean? Does this mean that home prices are falling or not? Not necessarily. It is possible for home prices to rise each week, but still be lower than 2022 prices. Remember that the majority of the price drops occurred in 2022. Prices aren’t showing any signs of falling as of now. The annual comparisons will get worse over the next few months, as prices have risen so fast since 2022. Prices could fall again if economic conditions worsen. This happened in the second half 2022.
To realize the most extreme home price decline predictions — people who anticipate 20% or more home price drops — we would need to experience significant economic weakness. Although it seems possible, the data currently doesn’t support it.
This chart shows that the first line in the dark red would fall below the light line every week — the median home price now lower than 2022 — and then it would fall more quickly in the second half. We’ll be watching for these dire scenarios in the pending sale.
I expect price cuts to begin to increase next week. The homes that were listed in Q1 but have not received offers will begin to see price reductions once April is here. Prices have dropped to just over 30%, which is probably the lowest point in recent years. Now the question is: Will they increase on the curve compared to last year? The chart below shows how quickly demand slowed in the third and fourth quarters. You can expect price reduction data to reflect a recession or job loss. This curve will stay flatter if we have a soft economic landing. This flatter curve is an indicator that home prices are not falling further.
Remember that homes that were sold in February were still on the market and had price reductions in November and December when the February sales data hits the headlines. For home sales prices to fall from here, we would expect there to be less demand right now. We’ll see price drops increase each week if the economy drives lower demand.
We need to be attentive to the economy and financial markets. offers a free consultation with our team to help you understand the current state of your local market. We can help you understand this market and present it to your clients. This is a crucial time to be fully informed about the market.
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