Written by Breck Hapner
According to the August 3rd realtor.com Weekly Housing Trends report, the U.S. housing market is currently experiencing some very interesting trends, such as substantial changes in home prices, housing inventory, new listings, days on the market (DOM), and the number of reduced-price listings.
The U.S. housing market was definitely experiencing the pains brought on by tight inventory and limited affordability during the month of July. Compared to a year ago, there have been fewer homes for sale nationwide for the past six weeks, which is considerably different from the 50 to 60 percent year-over-year (YOY) gains from December 2022 through March 2023.
This decrease in housing inventory is mainly due to new listings falling YOY for 56 consecutive weeks (i.e., more than a year of declines) and the fact that inventory was skyrocketing at this time last year. For example, based on data from Mike Simonsen at Altos Research (see the embedded video in the article), there are only 14,000 more homes for sale nationwide compared to the start of 2023 (i.e., three-percent growth YTD) versus this time in 2022, when 247,000 homes were on the market across the U.S.
Also, according to a Redfin report published this month, despite average 30-year fixed mortgage rates having hovered around seven percent, up from a three percent average in 2021 and a 5.3 percent average in 2022, the U.S. median sold price is up by three percent YOY during the four weeks ending August 6th, the biggest increase since November.
So, what is going on? Let’s take a look at realtor.com’s latest analysis for more insight. To access the spreadsheet statistics referenced in this article, head to the realtor.com data library and click on the “View US Data” link.
The realtor.com data presents some significant changes. For the week ending July 23rd, the median asking price on a national level actually increased by 0.2 percent. Last week it was flat, and before that were six consecutive decreases on a YOY basis. The weekend of June 10th posted a YOY drop of 0.9 percent in asking prices, the biggest decrease going back to July 2017 (as far back as realtor.com’s data goes).
Experts forecast positive gains in home prices YOY in the coming months, unless something drastic happens such as a sudden surge in mortgage rates or a spike in unemployment. However, please keep in mind that YOY and monthly changes should not be mistaken for one another, as home prices should decrease on a monthly basis for the remainder of this year due to seasonality and low affordability.
Asking Prices Rise
The realtor.com data reports that trends have changed vastly. Going from flat two weeks ago, asking prices in the U.S. rose, as noted, by 0.2 percent, marking the first YOY increase since early June.
In order to add clarity to the asking prices dilemma, let’s compare Redfin’s weekly housing market data. Click the “Median Sale Price” tab. Redfin shows that home sold prices are up three percent YOY, even though prices have been decreasing for the past several weeks.
As mentioned, home prices will likely decrease for the remainder of the year. However, the decrease is not anticipated to be as substantial as the drop experienced in 2022, when both inventory and interest rates nearly doubled. While interest rates are still high, inventory has only been up by a very small fraction compared to the start of this year, which is drastically different compared to 2022.
Overall Housing Inventory Dropping Dramatically
Realtor.com shares that housing inventory decreased 8.6 percent YOY last week, marking the sixth consecutive week of inventory level diminishment. This is a night-and-day difference compared to the massive 50 to 70 percent gains during December 2022 through March 2023.
The housing supply changes on a YOY basis have been on a downward trend ever since early February 2023 due to a lack of new listings. Inventory was expanding this time last year, and in contrast, inventory is only slightly up year to date (YTD).
The realtor.com data shows 539,000 homes for sale, 10 percent fewer compared to 2022, which is much different than the 76 percent gain on a YOY basis during late February 2023. As referenced in the Simonsen Altos Research video, YTD inventory surged by 85 percent last year, whereas this year, it only increased by three percent.
This is why home prices fell so dramatically last year, whereas this year, prices are decreasing but not at the same sharp rate observed in 2022. Also, since April, inventory has been increasing very slowly, mainly due to seasonality and falling home buyer demand. The latter can be attributed to elevated home prices and mortgage rates that have consistently remained above seven percent for a considerable duration. The direction of the U.S. housing market will hinge on the equilibrium between supply and demand. Compared to pre-pandemic levels during the same timeframe in 2019, it is down by 50 percent, which is roughly equivalent to 500,000 houses for sale.
Few New Listings are on the Market
Realtor.com provides data regarding the lack of new supply in the market, a clear contributing factor to the persistently low inventory levels for existing houses.
Last week, housing inventory witnessed a 16.5 percent decline in the number of new listings compared to the same time frame in 2022. And this trend of double-digit reductions has been consistent for 50 of the last 53 weeks, nearly an entire year.
Overall, new listings have been decreasing for 56 consecutive weeks YOY dating back to early July 2022.
Ninth Consecutive Week with Decreased YOY Price Reductions
According to the realtor.com data, the number of price reductions compared to 12 months ago decreased 31.1 percent. This marks the ninth consecutive week exhibiting YOY declines. This is much different compared to the triple-digit gains observed at the beginning of this year. These negative percentage shifts are due to low inventory levels, resulting in fewer options for home buyers and subsequently leading to fewer price reductions compared to one year ago.
Price drops reached their peak in early spring through late fall 2022. In contrast, the share of price drops is flat this year. For instance, on May 6th, the number of price reductions increased by 35%, and now it’s down by 31 percent. This year, price drops haven’t shown much movement, going from 29 percent to 34 percent. Last year, price drops were at 17 percent, increasing to 36 percent by July 2022.
Share of Price Reductions Remains High
According to the realtor.com spreadsheet data, the share of price reductions remains largely consistent with last year, as well as during the same week in 2018 and 2019. Of course, the share of price reductions is much higher now compared to 2020 and 2021.
Houses Are Taking Longer to Sell Compared to One Year Ago
Based on the realtor.com spreadsheet data, for 52 consecutive weeks, houses have been taking longer to sell compared to the same week in 2022. Last week, it took eight days longer to sell a home compared to 2022.
This marks a recent shift, because in the past two weeks, this change in sale time remained within single digits. Last week was the last time we saw single digit gains going back to mid-December 2022.
When looking at last week’s shift, the increase of eight days constitutes half of the gains we saw back in May, when the DOM was 15 to 16 days longer.
Mortgage Rates Remain High
Using the Freddie Mac Primary Mortgage Market Survey tool, this July, average 30-year fixed rates were just shy of seven percent versus 5.4 percent in July 2022. The 6.8/6.9 percent mortgage rate is close to being the highest since 2022.
Freddie Mac states that mortgage rates have increased for three weeks straight, “prolonging affordability challenges longer than expected, particularly with home prices on the rise again.”
What Might the Future Hold for the U.S. Housing Market?
What changes can be expected in the U. S. housing market due to the fact that mortgage rates and home prices are so high?
Average 30-year rates are 1.4 percentage points higher than 12 months ago, which equates to a 14 percent buyer purchasing power decrease. In addition, the U.S. housing market is experiencing many challenges such as near-record low housing inventory, elevated mortgage rates, high inflation, rising unemployment, and the threat of a potential recession early in 2024.
Despite an annualized growth of 2.4 percent in Q2, which surpassed expectations, it’s worth noting that a U.S. recession can be triggered by only two consecutive quarters of negative Gross Domestic Product (GDP) performance. As a result, a significant level of economic uncertainty continues to impact financial markets. As noted, housing affordability is a huge hurdle for home buyers, especially compared to the past couple of years, when mortgage rates have more than doubled and housing prices are up approximately 40 percent from 2020. The combination of rising mortgage rates and home prices is causing affordability to become a major concern, because this trend is clearly not sustainable.
Early signs of home buyer demand have been all over the place this year due to the volatility of mortgage rates. The most recent Mortgage Bankers Association (MBA) stats show that applications for home loans to buy houses decreased by 23 percent YOY for the week ending July 28th. When looking at pre-COVID levels, the MBA purchase index is on par with the lowest levels since December 2014. In other words, home buying demand is still very low.
According to a June 22nd Redfin report, pending home sales fell by 16 percent compared to a year ago, and new listings are down 24 percent. Low demand and low supply are generating increased competition and bidding wars for available homes in some U.S. markets.
To further exacerbate the problem, sellers and buyers have exited the market, leading to a dip in new listings and pending sales compared to the last several years.
If homeowners continue to decide that the present is not a good time to sell their houses, the U.S. housing market will definitely be in for a wild ride during the coming months.
In our August recap, Haven will take a further look at the numbers: how the current U.S. housing market is reacting to prevailing economic factors influencing real estate.
