More price cuts as inventory continues to grow

Nationally, the housing market indicators have been slow for several months now. There have been a few markets; however, that have defied the national trends where inventory has stayed tighter and demand keeps rolling in. Available inventory of unsold homes in the U.S. is 40% more now than last year, but some markets are just now starting to lift beyond the pandemic lows. 

It was the second half of the year last year when mortgage rates started rising. After June 2023, mortgage rates climbed from the 6s into the 7s on the way to 8% by October. Mortgage rates are higher than they were six months ago, higher than last year, and higher than two years ago. Consumers can’t help but feel it. We continue to see slow sales as a result. As we move into July and August, will we finally move past this period of rising mortgage rates? And how quickly will consumers notice?

Let’s look at the details of the U.S. real estate market as we’re now in the second half of 2024.

Inventory rose just over 1% this week

Available inventory of unsold single-family homes rose by just over 1% this week to 653,000. There are now 40% more homes on the market across the country than a year ago. 

Inventory is up 1% for the week and it will still climb over the next few months. In the pre-pandemic years, it was common for inventory to peak at the end of July. Over the past decade, each year with low interest rates would lead to fewer and fewer homes for sale. In the past two years, we’ve had rising mortgage rates and rising inventory. It doesn’t seem like we’ve hit a peak in rates yet, so we have to assume that inventory will keep climbing. 

Inventory is rising everywhere in the country. Every state has more homes on the market now than a year ago. Even in places like the northeast, which had the least inventory growth, has seen inventory accelerating. Massachusetts has 35% more homes on the market now than a year ago. Massachusetts and New York, for example, are still just coming off the record tight markets of the pandemic, but that trend is changing — finally. 

New listings show 12% more sellers than a year ago

When we look at the new supply hitting the market each week, we see the same trend we’ve had for a few months. There are more sellers than a year ago, but still not a lot of sellers. We saw 71,000 new listings for single-family homes this week. There were another 16,000 new listings that are already under contract as immediate sales — that’s 87,000 total sellers this week. That’s 12% more sellers than a year ago, which is right in line with what has been the trend for most of the year. We have a few more sellers each week, and just about the same number of buyers; therefore, inventory is growing. 

Two years ago after mortgage rates first started their ascent, sellers were rushing to get to market. In the first week of July 2022, there were 90,000 new listings unsold and another 24,000 immediate sales. That’s 114,000 sellers vs. 87,000 now.

So what do we see now? We see that sellers are still restricted. I don’t see a reason for that trend to change in the second half of this year. That means inventory will grow — we have 12% more sellers than last year — but it won’t get too far ahead of demand and create a crash scenario. 

Since the holiday weekend ended yesterday, we’ll see a drop in the new listings in next Monday’s data, and a gradual seasonal decline for the rest of the year. 

Pending home sales up

There were 68,000 new contracts started for single-family home sales this week. That’s a couple percent more than last week. It’s actually 8% fewer than the same week a year ago. I hate reporting fewer sales than a year ago, but that’s where we are. The sales pace hasn’t really budged in eight weeks during what would normally be the peak of the homebuying season. 

In fact, the sales trend has slowed in the last couple months. This week recorded 8% fewer contracts than a year ago. That bounces a bit, but the trend has been fewer sales since early May. 

In July and August of 2022, in that moment when the supply valve shut off, there was still some buyer momentum. Now, we’re two years past that and mortgage rates are still in the 7s. There is just no real opportunity to encourage buyers. 

There are 381,000 single-family homes under contract across the country. After the end-of-month closings, there are 4% fewer homes under contract than last week. Last year, at this time there were almost exactly the same number of homes under contract. Earlier in the year, I talked about some sales volume growth that we could see in the pendings data, but that growth is gone. It won’t pick up until we see mortgage rates decline. If we finally see rates in mid-6s, one of the places you’ll see the change will be in a pickup of pending sales. 

Home prices inching down

The median price of single-family homes in the U.S. is just under $455,000. That peaked a few weeks ago and is inching down each week for the second half of the year. $455,000 is the median price of all the homes on the market around the country, and that is unchanged from a year ago. We have zero percent home price appreciation over the last year. It’s basically unchanged for two full years.

The price of the newly listed home is $425,000 this week. These are the 71,000 homes that hit the market this week. That’s a 5% increase above the same week a year ago. The price of the new listings is a leading indicator for future sales prices and has still been running 0-5% increases over 2023. 

For the homes getting offers and going under contract — these are the new pendings each week — those are priced at $395,000. Those contracts are still 4% more expensive than a year ago. By this measure, home prices are up 4% over last year.

When we seek to understand whether home prices will fall in the future, it helps to think about the phenomenon they call “downside stickiness” in home prices. It’s very easy for sellers to list their house for sale at a premium, but the next discount is more difficult to swallow. That downside stickiness is why I think we’re seeing obviously bigger supply with slower demand and home prices are flattening, but they are not falling. We don’t have any indicators in the data that point to negative annual home price changes in 2024. We see flat. 

Price reductions are up

When we look to the future of home prices for sales that haven’t happened yet, we see a continuation of the trend we’ve been talking about for weeks. The percentage of listings that have cut their asking price from the original list price is now up to 38% of the market. That’s a fairly high number. It’s 40 basis points up from last week. That’s indicative of demand weakness. If I’m a seller, and I don’t see an offer in a month or so, I will opt to cut my price. 

Should we be alarmed by this? My answer is that this is notable. It’s one of the indicators that shows us that home prices will be flat, but compared to the slope from 2022, it shows that the market isn’t grinding to a halt.

In places like Boston or Southern California, which had surprisingly resilient years so far in the real estate market, as inventory builds there, we will see some sellers who are surprised at the change. Those sellers will be over priced, they’ll not get offers, and we’ll see price reductions rise in the second half of the year. We’re at the start of the shift in those markets which have remained hotter in 2024. Keep your eyes on that — especially if you’re in a market like New England where you’ve been hearing about how Florida or Texas inventory is way up, but you’re watching homes in your own neighborhood get bidding wars just like the pandemic. It seems to me that those markets are finally shifting now.

Homebuyers are obviously sensitive to the cost of money, and mortgage rates stayed higher for longer than anyone anticipated this year. They haven’t come down yet. But neither have home prices. If you aren’t watching the data each week, you’re probably behind the curve.

Mike Simonsen is the founder of Altos Research.