A few months ago I published a video where we asked, “How much will home prices gain by the end of the year?” Using a headline like that should come with a trigger warning. We could see that home prices were inching up, but there are many who think that home prices are currently falling. Even this week saw a press release with a “home prices in free fall” headline that got picked up all over the media.
Watch the video above to get the latest housing market update from Altos Research. Or, you can check out some key data takeaways from the week ending Dec. 11.
Home prices are flat
The median price of single-family homes in the U.S. is up 2% to 3% over last year at this time. There are a handful of local markets where prices have not found a bottom, but in most of the country home prices actually climbed in the last 12 months.
But, 3% home price gains is not that significant. You can kind of think of it as flat. Especially when you factor in inflation.
Median prices down a fraction
The median price of single family homes in the US is $424,900. That’s down just a tiny fraction from last week and 2.4% higher than last year at this time.
There are two takeaways from the the home prices data:
First, there are really no national indicators, anywhere in the data, that show home prices currently falling. There are none. So if you read a headline that says “home prices are in freefall” you know immediately to discount the clickbait. There are some local markets, for example Austin Texas or condos in San Francisco where the data shows prices falling. But nationally it is not true.
The second takeaway is the lesson I’ve been sharing lately: Consumers are more sensitive to changes in mortgage rates than to the absolute levels of rates. Last year mortgage interest rates rose by 450 basis points from 3% to 7.5%. That was a huge change in a short period. That’s when prices fell. One thing that triggers home prices to resume falling would be a spike in rates. If rates jump over 8% in Q1, that will indeed push prices lower.
Price reductions at normal rates
Normal markets about a third of homes take a price cut. Right now 38.3% of listings have taken a price cut. So that’s more than normal. It’s a reflection of unaffordability. It’s a reflection of very high mortgage rates and how quickly rates rose in September and October.
Inventory is declining for the holidays
There are now 546,000 single-family homes on the market. That’s 1.75% fewer than last week. Inventory is finally declining for the holidays. There are 2% more homes on the market now than last year at this time. The last few months as mortgage rates rose, inventory rose too. Rates have stabilized, and inventory if falling into the new year.
We can see that while inventory rises with rates and falls with rates, that there is no signal of any flood of sellers. If we had a flood of sellers, that would be bearish for home prices. Too much supply implies that home prices would drop.
A few more listings, a few more sales, this is good for housing. It shows the early stages of thawing from a frigid year. This thawing makes sense too. Consumers are now shopping for homes knowing that mortgage rates are in the 7s. Stability in rates lets people act.
It’s no secret that home sales volumes have been in deep recession in 2023 – that’s why I called it frigid. 30% fewer home sales this year than in 2022. I’ve been trying to highlight in the last few weeks how the pace of home sales has stopped declining and is about to show some recovery in 2024. Why we’ll have more home sales in 2024 than 2023. This week there were 6.4% more new contracts started than the same week last year.
There are still 1.3% fewer contracts pending overall than last year at this time. 279,000 single family homes are in the sales contract pending stage vs, 282,000 last year. These are sales that will close in the near future.
Keep in mind the headlines you hear elsewhere will still report shrinking home sales for a few months of course. Because these will close in the future. We haven’t crossed over to growth yet, but the transition appears to be here.
Mike Simonsen is the president and founder of Altos Research.
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