Altering homebuyer expectations are slowing the housing market

Residence gross sales every week proceed to be at depressed ranges. We counted solely 59,000 new pending gross sales this week. In the meantime, the obtainable stock of unsold houses is rising. This week, stock grew quicker than it did final yr presently. That is alarming as a result of this was the second final yr when the market turned south. This week was the largest week of stock improve all yr, with stock rising by over 9,000 single-family houses.

Since stock is climbing by a notable proportion, we in all probability have a couple of extra weeks of stock positive factors earlier than we hit the highest of the curve for the yr. It’s common for a little bit soar in new listings in September. Final yr, stock climbed dramatically for months. This yr, stock is barely simply beginning to improve. It is a pattern price watching. 

What’s occurring?

Clearly, mortgage charges have been stubbornly over 7% for a few months. There was a psychology change for homebuyers within the late summer season. That’s a change in expectation of mortgage charges. Consumers early in 2023 had barely decrease charges than now and had been optimistic that mortgage charges would go decrease nonetheless. On the time, most mortgage charge forecasters had been assuming the financial system would gradual so charges would decline. Additionally, they thought that the unfold between the 10-year bond and the 30-year mortgage would chop, which might imply mortgage charges would find yourself nearer to five.5% than to 7.5%. The standard knowledge was that charges would head decrease. 

We’re listening to folks think about 8% mortgage charges. Early within the yr, folks had been shopping for at 6.5% and imagining 5.5% the place they might refinance. Now, you’re taking a look at 7.5% and imagining 8% or increased. This “increased for longer” standard knowledge is working its means by way of the housing market.

I interviewed Dr. Jessica Lautz from the Nationwide Affiliation of Realtors for the Altos podcast and we talked in regards to the prospect of 8% mortgage charges. I checked in with Robert Dietz of the Residence Builders Affiliation and so they’ve raised their outlook on mortgage charges, as nicely. This modification in purchaser expectations is including to the slowness proper now. It’s a reasonably abrupt change.

There are actually 519,000 single-family houses in the marketplace throughout the U.S. That’s a 1.9% improve from final week. That’s a giant improve this late within the yr. This displays a notable slowdown in demand with mortgage charges nicely over 7% and this variation in expectation of future charges. As I discussed, the 9,000 unit improve in unsold stock this week was the only largest improve week all yr.  That is a simple technique to quantify the decreased demand that goes together with rising unaffordability. 

Context is essential. A 9,000-unit improve is the largest week all yr.

Final yr, we had been seeing stock develop by 20,000 or 30,000 models per week. 9 thousand is rather a lot for September however it’s not rather a lot within the grand scheme. It exhibits apparent slowing demand, however can also be a mirrored image of the truth that a lot of the yr we had extra consumers than sellers of residential actual property. Whole obtainable stock of unsold single-family houses remains to be 6% lower than final yr. It’s greater than I anticipated a couple of weeks in the past, however there’s nonetheless not lots of new provide. 


The speed of gross sales every week is discouraging

There’s simply nothing within the information that exhibits gross sales charges rising from the very low ranges we’ve seen all yr. The tempo of dwelling gross sales this yr has been each demand and supply-constrained. Proper now, it’s a requirement story. A lot of the yr, gross sales charges have been suppressed for lack of provide — not sufficient houses to purchase. That situation has shifted with the price of cash in late summer season. 

There have been solely 59,000 new pending gross sales of single-family houses within the U.S. this week. That tempo of gross sales stays 10% decrease than final yr. I hoped by now the straightforward year-on-year comparisons would present extra gross sales in This fall than in This fall 2022 however there’s simply no signal of that occuring. It’s actually now taking a look at January earlier than the market resets and we see what 2024 has in retailer for us. 


There are 345,000 single-family houses within the contract pending stage. That’s 12% fewer than final yr. On this chart the peak of every bar is the overall depend of houses in contract. The sunshine portion of the bar are the brand new transactions every week. Final yr, that new gross sales charge was plummeting every week. There have been nonetheless 390,000 single-family houses below contract final yr mid-September. I’ve been hoping that our pending gross sales would lastly eclipse final fall, however it isn’t getting there. 


After we have a look at that new gross sales charge every week, you’ll be able to see my disappointment. That is the chart of the brand new pending gross sales every week in contrast with final yr presently. The darkish purple line is that this yr. For some time in peak summer season it appeared like our gross sales charge would eclipse final yr. However then charges surged over 7% and the gross sales charge responded instantly. Now every week we now have 10-12% fewer gross sales than final yr.

You’ll be able to see on this chart the sunshine purple line in October took a giant dip final yr. That was each seasonal and strange with a giant late yr surge in mortgage charges. The one means we finish 2023 with extra gross sales than 2022 is that if mortgage charges begin easing down once more and that pattern appears sturdy.

The expectations now are extra frequent that charges aren’t falling, that 8% appears extra seemingly than say 6.5%, and which means a ton to consumers. I all the time warning that we at Altos don’t forecast mortgage charges, and I don’t have quantification of the house purchaser sentiment both, that is simply hypothesis on my half primarily based on the data circulate I’m beginning to see from the individuals who do forecast mortgage charges. And reality is that we will see considerably fewer consumers within the final couple months. That’s what this chart exhibits us since July.

Few presents, extra worth reductions as stock builds

As stock builds, with fewer presents, so too should the worth reductions climb. Certain sufficient the had been extra worth cuts this week. As much as 36.6% of the houses in the marketplace have taken a worth lower just lately from their authentic listing worth. See the darkish purple line right here, that’s this yr’s curve and within the final couple months the pattern has reversed from bettering situations for sellers to weakening situations for sellers. Keep in mind that the worth reductions are a number one indicator of the place future gross sales will full. 


There’s lots of sign within the native markets too. The Texas markets like Austin and San Antonio and even Dallas are those the place stock is constructing and worth cuts are climbing. 

Residence costs nonetheless increased than final yr

Residence costs in the meantime are nonetheless on a special seasonal trajectory from final yr. The median worth of single household houses within the US is $444,900 now. Residence costs are nonetheless 1% increased than final yr. These comparisons are about to get simpler nonetheless. The query is whether or not weakening demand now brings costs decrease as rapidly as final fall. My suspicion isn’t any. You’ll be able to see the slope of the darkish purple line right here. Final yr dwelling costs peaked increased than this yr, and had been ratcheting decrease, particularly in October and November.


This yr the slope of seasonal worth declines has been rather more mild. That means the yr over yr dwelling worth positive factors will maintain and even enhance within the 4th quarter. Although I’d level out that dwelling worth positive factors are much less essential this yr than the overall transaction quantity. The provision and demand constraints. To ensure that the market to really feel extra wholesome, we’d like extra transactions. The truth that dwelling costs are up yr over yr simply helps us see that there is no such thing as a 2008 apocalypse occurring. 

The worth of the newly listed properties this week popped up a bit. That’s common for mid-September. So I wouldn’t learn an excessive amount of into it. The worth of the brand new listings is extra unstable every week. At $399,900 that’s increased than final yr presently, however can bounce down subsequent week. It’s not plummeting, so once more, when you’ve got a speculation that the housing market have to be crashing, for those who assume that dwelling costs are crashing, utilizing the main indicators like the worth of the brand new listings is useful to substantiate or reject that speculation. 

Mike Simonsen is president and founding father of Altos Analysis.