U.S. State of the Housing Market, October Recap

According to the Realtor.com October 2023 Monthly Housing Market Trends Report, released on November 2nd, homes actively for sale are down two percent year-over-year (YOY). Although a seasonal slowdown typically occurs during this time of the year, the inventory of homes for sale increased by 5.1 percent. However, despite this small monthly increase, active inventory is down by 41.8 percent compared to the typical October between 2017 and 2019.  

Referring to the Realtor.com October “Active Listing Count” graph within the report, as of October, there are currently 737,480 houses for sale. This is roughly on par with last year’s levels (only down by two percent) and the levels witnessed in 2020 as well. Active listings remain higher compared to 2021 but much lower compared to average pre-pandemic levels.

Inventory levels, which typically peak between July and August, continue to increase compared to pre-COVID levels. As mentioned, this is highly unusual since these levels typically decrease during the fall and winter months. For example, inventory surged during May, June, and July 2022, doubling in three months. In April 2022, there were approximately 375,000 homes for sale, and by July, there were 700,000. This is not happening this year because inventory is slowly increasing every month, although it has been increasing at a faster pace this October compared to the previous few months. 

This late-season surge in inventory did not occur in 2022. After July, inventory levels plateaued for the remainder of the year, whereas in 2023, inventory levels have been increasing over the past few months, more pronounced than last year’s levels, which could place downward pressure on home prices.

Even with high mortgage rates quelling transactions and the number of new listings decreasing, seasonality and rising inventory could synergistically work together to lower homes’ prices during November and December 2023. However, this decline is not expected to be as drastic as witnessed during 2022, when housing inventory doubled over a three-month span.

Housing demand is actually falling. According to an October 18th Bloomberg article, applications for mortgages have hit a 28-year low. An October 10th CNBC report detailed how rising interest rates have caused an all-time record low for housing affordability, leading to a significant pullback in home sales that could engender an economic hard landing. 

In an October 19th report, the National Association of Realtors (NAR) announced that “home sales fell in September to the lowest rate in 13 years,” with existing home sales decreasing two percent to a seasonally adjusted rate of 3.96 million, the lowest since October 2010.

Much could change in the U.S. housing market due to the decrease in demand with fewer contracts signed, subsequently leading to declining home sales. All these factors contribute to houses taking longer to sell. As more and more houses get listed for sale, inventory rises. Therefore, the market should expect a decrease in home prices comparable to the last half of 2022. 

Referencing the Realtor.com October “Pending Listing Count” graph in the market trends report, compared to October 2022, pending homes sales decreased by 7.6 percent. Pending homes are a measure of contracts being signed, “an early indicator of the direction of sales which cooled to a lower annual pace of 3.96 million in September.” 

Because pending home sales are still down compared to 2022, and have been down every single month this year, this implies a very low level of closed home sales in both November and December 2023. This is attributed to seasonality but also to a shortage of signed contracts.

Referring to the Realtor.com October “Newly Listed Homes” graph, new listings on a national level were down by 3.2 percent YOY, but still better than September, which had experienced a decline of 9.1 percent. New listings are down 2.6 percent compared to the previous month, although the average seasonal decrease in new listings has averaged 5.8 percent month-over-month (MOM) since 2017. “Nevertheless, high mortgage rates continue to impact selling activity as homeowners feel ‘locked-in’ to previously low rates.”

What is entirely different compared to 2022: New listings basically fell off a cliff during July because mortgage rates more than doubled in less than 12 months. Because of that, sellers are holding onto their existing properties, causing the decline in new listings. A concerning trend is the recent rise of inventory levels, even though inventory had been slowly decreasing over the past several months. 

Could there be a real estate market crash? There are a lot of headwinds at the moment, including record-low housing affordability coupled with eight-percent mortgage rates. However, a crash typically requires an environment where supply far outweighs demand, and that is not currently the case. New listings are down, and active listing inventory is also down, especially compared to 2017.

According to Realtor.com, compared to 2022, inventory decreased in 33 of the 50 largest U.S. metro regions. The Southern metros of Memphis, New Orleans, and San Antonio experienced significant inventory growth, although at a lower level when compared to pre-pandemic years. Therefore, compared to 2017 through 2019, inventory levels are down in every single one of the 50 largest U.S. metros, except for Austin and San Antonio.

According to the Realtor.com October “Days on Market” graph, homes are currently on the market one day less compared to 12 months ago and 16 days less than the average October from 2017 through 2019.

Still, houses are taking longer to sell compared to 2021 when days on the market were around 43 days. In the period from 2017 through 2019, days on the market averaged approximately 65 days, indicating that houses are selling faster compared to that time frame.

The Realtor.com “October 2023 Regional Statistics” chart for the 50 largest metros show how each of the top four major U.S. regions fared compared to 12 months ago. The percentage changes in the active listing count for houses for sale in the Midwest, the Northeast, and the South were lower compared to 2022. However, the South saw a small gain of 3.3 percent, whereas the West fell dramatically by nearly 25 percent.

New listings were down across all major regions, with the West experiencing the most significant decline at 10.2 percent. Median listing prices are all up compared to last year. The smallest gain is observed in the South, rising by 3.1 percent, while the Northeast has the highest increase at 9.3 percent.

Referencing the Realtor.com October “Price Reduced Share” graph, the percentage of houses for sale with a price reduction decreased from 21.5 percent in October 2022 to 18.9 percent this year. However, the share of price reductions has also been increasing at a much faster rate than is normal for this time of year. 

Since the share of price reductions is increasing, home-sold prices and asking prices are falling as well. For instance, in March 2022, the share of price reductions was only six percent, but by July, the share increased to 19 percent, more than tripling in less than one year. This year, the share of price reductions is still increasing from 12 percent in April to the current 19 percent. 

Unusually, the share of price reductions is still rising, but during 2017 through 2019, it peaked in July then decreased for the remainder of the year. This year, similar to inventory levels, the share of price reductions is still increasing but not at the same rate as in 2022.

Therefore, this implies a sharp pullback in prices compared to what is normal during this time of year. However, prices will not drop as much because inventory levels absolutely spiked, and price reductions more than tripled in less than three months in 2022.

Referring to the Realtor.com October “Median Listing Price” graph, the national median listing price decreased seasonally from $430,000 to $425,000 compared to September. On top of that, the median listing price has remained stable compared to one year ago, suggesting that asking prices have not changed since October 2022.

Scarce inventory levels have buoyed listing prices, as inventory is not surging like it did in 2022 and is well below the levels witnessed between 2017 through 2019. However, because inventory is still uncharacteristically rising when we typically witness a seasonal decline, home prices could fall much faster than normal in November and December.

While the median listing price remained relatively stable, now for the not-so-fun news. “Higher mortgage rates compared to October 2022 increased the monthly cost of financing 80 percent of the typical home by roughly $166 (+7.4 percent) compared to a year ago—a new record on top of what was already the highest amount since realtor.com began tracking this data in mid-2016. This increased the required household income to purchase the median-priced home by $6,600 to $120,000.”

So, a $120,000 yearly income is required in order to qualify or afford an average-priced home in the United States. This is directly correlated to high mortgage rates, resulting in a lack of affordable housing.

Buyers can’t afford to purchase a home, and sellers appear to be growing desperate. According to a November 6th Fortune report, “Nearly 7 percent of for-sale homes in the U.S. posted a price drop” during October due to high mortgage rates cutting into buyers’ budgets. Great uncertainty exists about the direction of the economy in terms of rising inflation and the possible rise in unemployment. Many still fear a recession.

It is clear that an uncomfortable imbalance presently exists. To put the dire need of housing market stability in perspective, Matthew Walsh, a housing economist for Moody’s Analytics, told Fortune: “Rates will remain higher for longer, and we expect demand to remain very low into 2024. Following two years of double-digit price growth, the housing market remains overvalued, and affordability is near a four-decade low.” 

As the U.S. housing market moves into the last quarter of 2023, it is imperative that housing affordability issues are addressed with lower mortgage rates and home prices to jump-start transactions, allowing the market to take initial steps toward recovery.

It seems, for now, that potential buyers will be forced to remain on the sidelines instead of actively participating in the market. 

In our November 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.