Last year at this time, we were seeing surprising homebuyer demand with rates having fallen to the low 6s. Now, mortgage rates are 100 basis points higher. As a result, inventory is higher and future sales price indicators are also softer than they were a year ago.
We still see more sellers than last year. Each week, there are more new listings than a year ago, allowing inventory to build and eventually leading to more home sales this year than last. But that sales growth rate is fragile too.
If mortgage rates stay in the 7s or keep climbing, you can see what’s going to happen to home prices. A week ago, I mentioned that some of the price signals were softening. Home prices aren’t falling but the growth signals are definitely softening. That trend continues this week.
The housing market data has been changing very rapidly this year. The economy has continued to be strong, so mortgage rates have defied expectations and climbed higher.
Inventory
There are now 498,000 single-family homes available unsold on the market around the U.S. That’s 70 basis points more than last week, and 16% more than last year at this time. This the first inventory increase of the year. The market will continue to build unsold inventory from here for the rest of the season. There’s nothing in the data that shows inventory declining from here this spring. You could get a little bounce up and down, but the trend is quite clear.
Mortgage rates are roughly 100 basis points higher than last year at this time and inventory is 16% more. Rates are 400 basis points higher than two years ago and inventory is 53% higher. Higher rates creates more inventory.
Many mortgage rate forecasters are still expecting a rate reversal, but until that actually comes to fruition, we will watch higher mortgage rates drive up the available selection of unsold homes.
New pendings
We’ve been sharing how the sales rate has been trying to expand for 2024. Unfortunately, rising mortgage rates have not been cooperating. Last week showed good growth in sales over 2023, and I mentioned that it might be fleeting. And sure enough the number of new contracts started this week dipped. With 59,000 new home sales started this week, that’s 2% fewer than last week. It’s just a fraction fewer than the same week in 2023.
Any week where we have negative sales growth from last year is a disappointment. But this is where you see the affordability and demand hit from higher mortgage rates.
It is important to note that we can have rising inventory and rising sales rates, which is what I expect. I just wish the sales rate were climbing more quickly and reliably.
Price reductions
Perhaps the most notable signal this week is that price cuts, the percentage of homes that have reduced the asking price from their original list price, ticked up from last week. There are now 30.4% of the homes on the market that have taken a price cut. That’s up from 30% last week.
We are in the normal range with price reductions, meaning sellers are generally fine, generally getting their prices. There’s no signal of prices falling. The uptick just shows us slowing momentum.
In a couple weeks, we could be behind of last year. More sellers with price cuts than a year ago. Last year at this time, we were seeing surprising home buyer demand with rates in the low 6s. Now mortgage rates are higher and we see the opposite trend happening. If we see this year’s line curve towards the top of the gray band quickly, that would be the next indicator of home price weakness.
But we’re not there yet. This isn’t a catastrophic call for home prices. It is simply very clear evidence of how home buyers wait when mortgage rates stay higher for longer.
Price of new pendings
The price of the homes that went into contract this week dipped a little too. The median price of the newly pending single family home sales was $375,000 this week. That’s down from $378,000 last week. Almost 1% dip. And is still 2% higher than last year.
It’s normal to have a bit of noise in the newly pending price, a little up and down across the year. It’s not a straight line. But it is maybe unusual to be in this key part of the buying season and see a downtick week. That’s something to keep an eye on.
Home prices
The median price of single family homes in the U.S. is $429,000. That’s up almost 1% from last week and is a couple percent higher than 2023 at this time.
The median price of the new listings this week is $410,000. That’s a pretty big jump from the week prior.
I’ve shared a few signals for prices “softening.” I use the word softening, to be distinct from “falling” or “declining.” Home prices are up over last year and do not show any signs of declining in 2024.
It can be hard to communicate all this with buyers and sellers. There are folks on the sidelines waiting for rates to drop so they can swoop in for sudden bargains. But they may not realize how much competition is waiting right along with them. And meanwhile mortgage rates are actually rising.
Mike Simonsen is the president and founder of Altos Research.
