Strong buyer demand is reflected in the growth in pending home sales
Friends, Americans are buying homes this winter. Housing inventory is decreasing each week, and pending sales are rising. There are fewer price drops and more sales every week in the market. Although the market isn’t as hot as last year, the data is undisputed. Although I used to call the trend “surprising”, I am no longer surprised by its consistency.
The big question isn’t whether people are buying homes. It’s not whether or not this soft landing will continue. Will a recession strike hard and derail the year’s demand? Will a strong economy lead directly to higher mortgage rates and the return of the ice-cold conditions in the second half 2022? It is evident that there is a lot of demand for homes.
The available inventory of single-family homes on sale declined by 1.8% to 457,000 this week. It is not uncommon for inventory to fall for a few more weeks in the first part of the year. This year’s changes are notable because inventory was increasing at an unusually fast pace in September and October.
If you read the headlines or watch the real estate crash YouTubers you would expect inventory to rise dramatically each week. It’s not happening. Because we have more buyers than sellers, inventory across the country is decreasing. We have very few sellers. This trend doesn’t seem to be changing. If mortgage rates remain in the low 6% range, inventory will continue to fall each week through February.
This chart shows that inventory decreased in each of the past two years with an insatiable market through February and March. I have highlighted the 354,000 homes that were on the market in February 2021. This point was still eighteen weeks before the bottom line of the inventory curve. On the other side, I highlighted February 2019’s 816,000. homes on the market. Inventory was already at its lowest point for that year.
As you can see, the curve was already at its bottom and was ready for spring home-buying season. 2021 and 2022 were the exceptions, but it seems like 2023 will be closer to the last two years than pre-COVID-19 levels. This means that inventory will continue to decline for many more weeks.
Only 52,000 new listings were added to the market this week. Last year, there were 58,000 new listings. In addition, 20% of all new listings are available for immediate sales. Consequently, 11,000 of the 52,000 new homes were offered and signed within days of listing. Each bar represents a week, and it measures the total number of new listings. The lighter portion of the bar indicates immediate sales.
These data tell us a few things. Properties that are priced well will sell quickly. This trend may seem strange if you aren’t in the market right at this moment, but it is what’s actually happening. Data also shows that there is no sign that a flood of homes for purchase is coming. There are no distressed sellers. There are no panicky investors. There are fewer sellers who can move up or down.
These trends will continue to limit inventory. The supply side of the supply-demand curve is tighter, which helps to keep pricing at a minimum. Despite the fact that mortgage payments are now more expensive than they were in 2022, the demand for these prices is greater than the supply.
On the demand side, it is clear that the volume of pending sales has risen significantly over December numbers and is increasing rapidly. With the sale still not closed, there are currently 279,000 single-family homes under contract. Each bar below represents a week, with the total number of homes in the contract pending phase. The week’s newly pending sales are represented by the light portion of each bar. You can see at the right-hand end of the chart how fast the number of pending sales keeps rising.
There are 26% less pending sales than there were 2022. But homebuyers are closing the gap quickly. In 2022, the end of the frenzy saw 8% more pending sales in February than the first week of February. This is what we mean by home buyer demand. These numbers aren’t crazy, but they’re sufficient. It’s also way better than in the fall.
Prices remain steady
In fact, the price for new pending sales rose in February. This is a sign that pricing strength is evident. Year over year, the price of homes under contract is $365,000 flat. This trend reflects the strength of the market and how it has cooled over the past eight months. Remember that pending sales are sales that will be completed in the next 30-60 days. This means that we can predict that home sales will remain flat. Prices aren’t falling, and prices for homes that are put into contract aren’t going up.
This week, the median price for single-family homes is $415,000. There is not much pressure for home prices in 2023 to rise despite tight supply. While mortgage rates are much more expensive than in recent years, we don’t see evidence of overbidding.
The chart below shows the trajectory of home prices as indicated by the dark red line. Prices have risen every spring since 2022, when there was the most inventory. However, in 2023, prices will rise much slower than in 2022. This is the signal that home prices in 2023 will remain flat year over year, compared to 2022.
The price of new listings is actually 1% lower than last year’s numbers, when prices were still skyrocketing at $380,000. See the light-colored line.
This week, we will be watching closely: Will the price for new listings go down slightly year-over-year? It is possible. This data is not representative for all home prices. It is only a leading indicator of where home sales will occur later in the season. The data for 2023 is flat.
The market is down to 33% for price reductions. It is normal for one third of homes on the market to have their prices reduced before they sell. Price reductions don’t indicate a cold market. This is not a market that is crashing. This is not a market that has panicky sellers. The chart shows that the market is rapidly declining as buyers clear out inventory that didn’t sell between November and December 2022. If you had a house that was on the market in November 2022 but didn’t receive any offers, it might have been priced down in December to make it more attractive for buyers. It will now be selling in 2023.
However, if you see fearmongers on social media talking about a housing collapse, ignore them. The market is not weakening, but it is improving, at the very least according to this measure. There is more demand, and there is price stability.
Altos Research’s president is Mike Simonsen.
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