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The data that shows falling inventory each week is not surprising. It’s March, a time when inventory would normally increase as peak home-buying season approaches. But sellers are not letting up. There are no signs of a panicky investor selling, no surge of sellers, and almost no one out-of-work in the U.S., so there are not many distressed sellers. Low mortgage rates have secured most homeowners’ homes, so they are not looking to get rid of them. Most people don’t sell their homes even when it is time to move.
We have now seen the steep slowdown in the housing market since 2022. We now have good visibility into many trends for the remainder 2023. These trends could change in the event of a severe recession, large job losses, or if mortgage rates rise above 7% due to strong economic data. Although there are some risks of a new downturn in housing, the data is very stable as of right now. It will be difficult for the most bearish predictions about the housing market to come to fruition this year.
Inventory
The U.S.’s inventory of single-family homes on the market for sale dropped by 1.5% to 412,000 this week. There were 248k houses on the market in 2022, but this number was slowly rising. Inventory was steadily rising in 2022, despite the insane record lows of COVID-19. Inventory was so low in 2022 due to Americans buying everything they could see, taking advantage of the ultra-low mortgage rates. After February, demand dropped and inventory finally began to increase.
The inventory drop this year is not about buyer demand. It’s about sellers. There are no compelling reasons to sell your house right now, as I said. The data shows that there are 66% fewer homes on the market right now than 2022, but this margin is shrinking. Every week, fewer homes are on the market. In contrast, there were more homes in 2022 every week.
In 2019, there were 812,000 properties on the market. Now, there are half as many. This point has been highlighted in the chart. As you can see, inventory is still falling rapidly each week. We may see a few more weeks with inventory declining. Inventory could fall by 1% to.5% before finally flattening and rising in April.
This will be discussed in more detail during the webinar on Wednesday March 15, 2023. Now, we’re looking at scenarios in which there are only 500,000 homes available on the market at the end 2023. Looking at the year-over-year inventory changes can help you predict future price changes. This would mean that home prices will rise next year, even though they are flat to down in 2023 compared with 2022. This scenario would assume that supply stays on the current restricted path. This means that if inventory in 2023 doesn’t rise soon, then supply will remain restricted and prices will continue to fall.
There have been 20% fewer listings each week than in 2022. Because of the tight supply, this market will continue to see a low number of home sales.
The data shows that 29% of new listings went into contract within 24 hours. These are the listings that go on the market immediately after they have been listed and accept offers within a few days. They bypass the active market, and move straight to pending. These immediate sales were the market’s defining characteristic from 2020 to 2022.
This is the light red section of each bar in this chart. These immediate sales didn’t happen until 2022 and inventory grew. With inventory so tight, some buyers are looking for great opportunities. This is why immediate sales are rising again this spring. The total number of listings is much lower now than it was in 2022, but it is increasing for the spring.
It is a pity that the housing bubble forecasters on the internet don’t like it when I point out that there isn’t any sign of a huge surge in inventory anywhere in the country. This means that even at higher mortgage rates, home values are not falling dramatically. The supply side of this supply/demand ratio seems to be too small.
Price
When compared to the previous week, prices are increasing. This week, the median home price in the United States is $428,000 Home prices have fallen compared to 2022. In 2022, home prices rose very quickly every week due to the last few drops in demand for low-interest mortgages. Prices are rising this year because it is spring, but they aren’t rising as fast as last year, so year-over-year comparisons of prices are getting lower.
These are all signals that we have been discussing for a while. There are no signs in the data, like inventory, that home prices are falling or that sellers panic or that buyers are on strike. The year-over-year comparisons for 2022 were absurd, so they are down. The ‘price of new listings’ is a measure of home prices. They are down from 2022. The chart below shows the median price of new listings for this week. It is shown in the light-colored line. It is only a fraction lower than 2022’s $399,900 across the country. This is a sign that home prices are falling.
Buyers are price sensitive. This is probably why there is a big difference between 6.5% and 3% mortgage rates. At 3%, I can overbid but my payments don’t change much. I am sensitive to every dollar of cost at 6 or 7. Although there is a low supply and moderate demand this fiscal year, home prices do not have an upside risk. They aren’t jumping from here. The price points at which demand is already at are the ones we have. We know what the headlines for the remainder of the year will be.
Pending sales
Week over week, the number of homes with pending agreements was almost flat. There are currently 323,000 single-family homes at the pending stage. This is 22% less than 2022. This is a significant decrease in sales that will be completed in the next months, but it is still a positive improvement on the fall.
This week’s 64,000 new contracts were slightly lower than last week. The light red portion of this bar shows this. One week is not indicative of a trend, as there’s always some volatility from week to week. I expect a gradual increase of pending sales over the next 14-15 week. 2023 will see a significant drop in sales compared to the previous years. However, single-family home contracts rising to around 80,000 each week would be a much better option than the second half 2022.
If economic conditions, recessions, job losses, inflation and other forms of uncertainty don’t improve, home buyers will suffer. This pending sales chart won’t grow to its July 1 peak. The new pending sales are represented by the light portion of this bar. It was shrinking each week, while inventory was increasing. Keep your eyes peeled for this.
If there is a market slowdown in 2023, we will also see a steeper rise in price reduction data. The good homes are selling quickly because there are so few on the market. This week, the percentage of homes that have had their prices reduced has fallen to just over 30%. This is a lot less than I expected.
As you can see, this year’s curve is just above previous years. With price drops, slightly more market share is left. It’s within a completely normal range. This means that future transactions will not experience significant price pressure. This means that if the house is currently on the market and there aren’t any buyers, there will be a price reduction. The future transaction would therefore be at a lower cost.
This data also shows that home prices are flat to down compared to last year. The bulk of the price declines occurred in July, August and September 2022. The number of sales that are now complete is lower than it was a year ago. The stuff that is on the market at this price doesn’t face any pressure to go lower in the future. This is another sign that the home price headlines won’t be positive for many months. We know where they won’t continue falling. Remember that a house on the market right now will need an offer in April before it closes. These headlines begin to appear in July. This chart has the most visibility.
Next week: More