Mortgage rates have come down with recent positive inflation news. However, they are still higher than they were six months ago. I think rates are on the verge of going lower. Will consumers respond? I expect that mortgage rates under 6.75% and moving towards 6.5% will shake homebuyers into action, but we certainly can’t see it in the data yet.
New pendings this week came in significantly below last year at this time. Mortgage rates are down, but it doesn’t appear to have hit a threshold to incentivize homebuyers yet. It’s too soon after the recent mortgage rate drop to see any bump in the home purchase numbers of course, but if rates keep falling or stay in the mid sixes for a while, maybe we’ll see some homebuyer demand in the late summer. As of July, in three of the last five weeks, we’ve seen new pendings come in fewer than last year. Fewer sales, mean a shrinking housing market as consumers wait it out.
Home prices are not as dire as the recent transaction volume.
Let’s look at the details of the U.S. real estate market as we’re now in the second half of 2024.
Inventory sees a big jump
There was a pretty big inventory jump of 2.6% this week to 668,000 single-family homes unsold on the market. That’s a buildup of 16,000 homes, the biggest one week change of the year. We’re rebounding inventory after the holiday, so it’s not that much of a surprise, and it’s less of a jump than what was happening at this time in 2022. There are another 179,000 condos unsold on the market.
We’re in a cycle of slow homebuyer demand, which has not yet responded to newly lower mortgage rates. Mortgage rates are still higher than they were last year at this time and higher than they were at the start of the year. So even though they’ve fallen from the recent peak in early May, consumers probably don’t feel like it’s any kind of bargain. Freddie Mac reported rates at 6.8%. In my opinion, under 6.75% on the way to 6.5% will be significant enough move in rates to move the needle for buyers. But this week sure didn’t provide any confirmation for hypothesis.
There are 39% more homes on the market now than a year ago. This is the same gap as we’ve been at for a while — just around 40% inventory growth over 2023. In the second half of last year, as mortgage rates were climbing, inventory kept climbing. So our expectation for the second half of this year is that inventory growth will compress compared to last year.
New listings rise
This week saw 69,000 new single family listings unsold. That’s 8% more than a year ago. There were another 15,000 new listings that are already in contract, which is very low for immediate sales recently.
So that’s a total of 84,000 total new sellers for single-family homes this week. That’s only 3% more sellers total this week than last year at this time. Remember that last year was characterized by that extreme shortage of sellers all year but there’s only 3% more sellers now.
Unsold inventory of homes on the market is growing now and that growth is coming from a demand slowdown not from a supply surge. In fact, sellers seem to be pulling back. The market is shaping up to look more like least year in that way. To me, that lack of new supply suggests it’ll keep a cap on inventory growth even if buyer demand stays dormant for the rest of the year.
We’ve had a surprisingly strong economy for the last two years, if that vibe changes for consumers, maybe we break out of the low-listing pattern we’ve been in for so long. Keep a look out for that.
Pending home sales slow
Even as the seller side stays restricted, when we look at the latest sales data, the new pending contracts that started this week, there is really nothing to be optimistic about. There were only 62,000 new contracts pending this week for single-family homes. That’s 9% fewer sales started than the same week a year ago. There were another 13,000 condos that went under contract. That sales number barely rebounded after the July 4 holiday earlier in the month.
What happens next with this indicator of home sales? We’ll probably see a a little rebound to finish the month, I assume this just because later in July is easier than early July. And mortgage rates have been moving in the right direction. And if rates fall far enough for long enough, maybe we’l see the demand pick up in August and September to show some annual growth. The good news is that rates have been moving in the right direction with the recently good inflation news.
Home prices stays steady
The median price of all the homes on the market in the U.S. is $450,000. That’s unchanged from last week and unchanged from a year ago. The market has been stable at this price point for several weeks now. Prices tend to cluster around the big round numbers. They’ll start receding for the back half of the year by mid August, I expect.
The price of the new listings rebounded this week to $425,000. That’s up 5% for the week. If you recall last week the new listings were priced under the previous year. After the rebound, the new listings are now back above last year by 6%. T
The new listings are a leading indicator of the market, the homes that get listed for sale take into account everything the sellers and listing agents know about their local markets. In aggregate those sellers tell us exactly where demand is for the homes. So it’s worth watching these closely and the indicators are showing prices supported at these levels.
The median price of the new sales this week is $389,900. This measure of home prices is still 3% more expensive than last year at this time. The price of these newly pending home sales passed its peak way back in May and has been easing down each week since. We can use the comparison with 2022 to see how there’s maybe less downside signal in home prices in 2024 even as demand remains weak.
Year-to-date prices show some appreciation
We’ve been talking about the slow sales pace but most measures of home prices still show some annual appreciation. It’s slow, but it’s generally up. Home prices climb in the first half of the year and recede in the second half of the year. All the annual gains for home price appreciation happen typically by June. The lowest prices for the year are over the New Years holiday.
Since the sales that are happening now are just 3% more expensive than those from last year, and the strength of the home sales season is behind us, it sure seems to me that 2024 will end in the 0-3% home price appreciation range.
Price reductions accelerate
And finally this week, our weekly look at the price cuts data. 38.6% of the homes on the market have taken a price cut from their original list price. That’s up 30 more basis points for the week. This leading indicator of future sales prices isn’t accelerating very quickly. It’s elevated, which shows the obviously weak demand. There’s no signal of demand increasing. As mortgage rates have dropped, and if they drop further and stay persistently in the mid 6s, that could change, but it hasn’t changed yet.
It’s notable here that we’re about to cross over with the 2022 line. In the second half of 2022, there was a lot more price pressure. Price cuts were still climbing by 150 points per week. Now, they’re climbing by 30 basis points. Home prices are not crashing, they are flattening.
Interestingly, the dollar amount of those price cuts is $20,000 — that’s 5% on a typical $400,000 home. That’s the same price cut amount as last year, but in 2022, when the brakes were really slammed, the median price cut was $24k. So add all these together and we get a pretty clear image of where home prices are heading for the rest of the year.
Mortgage rates stayed higher for longer than anyone anticipated this year. Maybe we’ve finally turned the corner? For buyers and sellers, these conditions can change fast. They need to hear the data from you so they know how to respond.
Mike Simonsen is the founder of Altos Research.
