The most notable trend in U.S. housing data recently is that price reductions are on the way up. There are more homes sitting on the market that didn’t get offers at their original list price and have had to reduce their prices than in any recent May.
What does this leading indicator data tell us about home prices for the rest of the year? Well, I have revised down my estimates for national home-price appreciation for 2024. We don’t see home prices falling, but the growth sure looks like it has slowed or even stopped.
Price reductions
Let’s start today with the price reductions data. This is the percent of the homes on the market that have taken a price cut from the original list price. Price cuts are on the rise nationally: 34.4% of the homes on the market have taken a price cut. That’s up 70 basis points from a week ago. Last year at this time, 29.9% of the homes on the market had price cuts.
There are two dynamics to note when looking at the price-cut data: First is the total level, which is a signal of organic levels of demand. Price reductions typically peak in November before resetting for the holidays and the fresh inventory in the spring. The second dynamic to watch here is how many sellers are cutting their prices each week.
Both dynamics are elevated this year: more of the homes on the market have taken price cuts and the slope is pretty steep — meaning more homes each week are cutting prices because they don’t have offers from buyers. It’s not as steep as 2022 — the market now is not shifting as quickly from big growth to price declines, like it did briefly about 18 months ago. But we can see that there is an upper limit to affordability for homebuyers and sellers should absolutely be aware of this before they list their homes.
Price cuts are not evenly distributed across the country. They’re not evenly distributed across price points either. Southern states, especially Florida, are dominating the price reductions now. In these markets, inventory is growing more rapidly and other costs, such as insurance and taxes, are up a lot. This makes buyers even more price-sensitive.
Also, it’s very interesting to me that the 2022 price cuts happened in the Western boom markets like Phoenix, Boise and Salt Lake City. This year, it’s Florida and the Southern markets.
Inventory
There are now 578,000 single-family homes unsold on the market. That’s up 1.7% for the week and 36% more homes unsold than a year ago.
Just like the price reductions are localized, so are the inventory changes. Many parts of the country still have very restricted inventory, just barely more than during the pandemic. In those places, like much of the northeast, supply is tight and well-priced homes are selling immediately. It’s really important to keep this in mind this year. It helps us see that nationally, we’re not barrelling toward a home price crash. The market overall is tempered with restricted supply in many places.
But it is also notable that as of this week, every state now has more inventory than a year ago. New York and Nevada were the last holdouts with less inventory, but now they’re both positive. So inventory is growing everywhere and will continue to grow as long as mortgage rates stay elevated.
Consumers react to rate changes, which is why inventory climbed so fast in 2022 — much faster than it is now. It’s also why inventory could compress in the second half of the year if mortgage rates finally fall back into the 6s.
New listings
New listings appear to have peaked for the year three weeks ago. There were just under 68,000 new listings unsold this week. That’s a pinch fewer sellers than last week, still 13% more sellers each week than a year ago. But seller volume appears to have peaked for the year.
In 2022, new listings kept growing until July as buyers and sellers were trying to get their deals done. As rates were rising, sellers were rushing to market. New listings volume fell off a cliff in July 2022. That July was a really important signal that as quickly as the market was changing, we weren’t in for a big crash, because supply was constricting. We have a little of that dynamic happening again now.
New listings peaked in the last week of April. That’s not uncommon timing, but I had hoped we’d get a few more weeks of seller growth. I’m generally interested in seller growth as one of the vectors that allows for more sales to happen. More sales is healthier for everyone. We have 13% more sellers than last year, and 20% fewer sellers than two years ago. If you think about it, 20% fewer sellers is a big deal — that’s the difference between 5 million and 4 million home sales in 2024.
It looks to me like we can only grow sales volume by a few percent yearly until we see more home sellers.
Pending home sales
Along with new listings, the pace of sales has tapered off in the last few weeks. There are 401,000 single family homes in contract right now. That’s only a fraction more than last year at this time. There were 68,000 new contracts started this week for single-family homes. That’s down 6% from a week ago, and essentially unchanged from the same week a year ago.
It was a bit of a disappointing week for home sales. Every time when it looks like sales are starting to grow this year, then we have a few weeks of plateau and those annual gains evaporate.
Home sales are running just a tiny bit ahead of 2023. Regionally we’ve had some sales gains in Texas with the greater available inventory.
Much of the northeast is still what I describe as a supply-constrained market, with barely more inventory available for homebuyers than during the pandemic. So the number of sales hasn’t really increased over last year in places like Ohio and Pennsylvania. In these markets, inventory is still very low and while there is enough demand to pick up the homes listed, there aren’t a lot listed, so sales are capped.
Home prices
The median price of all the single-family homes in the U.S. is $450,000, which has been unchanged for two years now. This moment in 2022 was the absolute peak for home prices. We don’t index or seasonally adjust these numbers. We’re simply counting everything.
In May, we’re almost at the peak pricing for the year as home prices peak in June each year. The new listings prices peaked last week. Last year, the momentum for the second half of the year was better. There were fewer price cuts and inventory was dropping versus the year prior.
The leading signals are opposite now, which is why I’m assuming the major price index headlines in the second half of the year will probably report declining home-price growth and maybe even end up flat for the year 2024.
