Another Week of Skyrocketing Real Estate Inventory

By Mike Simonsen at Altos Research

Available inventory of unsold single family homes rose another 6.2% this week to 444,000 homes. We now have more homes on the market than we did at any point last year. Available inventory is still 50-70% fewer than normal for this time of year. And that’s true even in places where inventory is skyrocketing, like the Phoenix market. And it’ll be interesting to watch how quickly we return to normal levels of inventory.

I’ve been of the view that it’ll take several years of higher interest rates to build up the inventory back to what would normally be 1 million single family homes available for buyers this time of year. If you listened to the Altos Top of Mind podcast last week where I interviewed Logan Mohtashami of HousingWire, you can hear his take on how it could be as soon as next summer when we’re back to normal. It surprised me when he said it, but his logic is reasonable. Even though I’ve been surprised how quickly we’ve added inventory back this summer, I’m still of the view that there is no giant wave coming. I just don’t see where it could come from. In any case, we have year over year inventory gains now and will for next year too. And that is frankly unusual in itself. We’ve had annually declining inventory for most of the decade.

Here’s one way to look at inventory changes and what might be coming. Each bar in the chart is a week of inventory change. Above the line inventory climbed for the week, below the line, inventory decreased. Each color here is a year. The brown at the far right end of the chart is the forecast for each week for the rest of the year. You can see how each year we have the spikes at the end of May and this year our spikes are continuing into June and July. There’s always a dip for the forth of July holiday which is next Monday. So we’ll see another surge this week. And then the following week will be lower. It looks like we’ll end the year with around 525,000 single family homes on the market, though if buyers stall in the fall it could easily be more than that.

Home Prices
Home prices ticked down this week. The median price of single family homes in the US is $453,800 now. That’s the first weekly downtick since January. This seems likely that it’s the first of the trend for the second half of the year.

The price of the new listings is also down this week to $419,900. The new listings leads the full active market (the light red line turns down before the dark red line), and is now 2.4% off its peak. Seasonally this is normal, I’m keeping my eye out for faster than normal price declines, but we haven’t seen them yet. Prices are sticky.

But we really can see buyer demand backing off. We’ve been sharing our price reductions data each week. The percent of active listings taking a price cut is accelerating at a record pace.

You can see how steeply the dark red line is climbing here.Each line here is a year. Next week we’ll have over 30% with price cuts for the first time since Christmas 2019. Price cuts show no signs of slowing yet either. Normally by mid summer the slope starts to level off. More price cuts happen in the third quarter, as you want to move that house before school or before the holidays. We’ve been talking about this for months. Sellers in August are still going to be surprised by how slow it is. Price cuts are still accelerating. There are a lot of sellers who tried to take advantage and just missed the window.

Immediate Sales
And we can really see the change in demand in our Immediate sales tracker. This week only 20,000 homes went into contract immediately after listing. That’s the fewest in any week since February. We have more new listings and fewer immediate sales than last year, and that’s why inventory is building. In two Mondays we’ll see the July 4th dip like you can see last year in the middle of the summer.

As a percentage of new listings, immediate sales are slowing dramatically. This week 19.7% of new listings went into contract within hours or just a couple days after listing. One in five with bidding wars down from one in three earlier in the year. You can see at the right end of this chart, each week we have fewer and fewer in this crazy competitive state.

In fact you can also see last summer immediate sales actually picked up as a percentage in the second half of the year. If you recall last summer I was surprised that the market re-accelerated when it did, and that set us up for this crazy first half of 2022. I suspect that won’t be the case any more. This line the percentage of homes going into contract immediate after listing, is going to keep dropping, probably under 10% by the fall.

This means fewer bidding wars and more selection for buyers. This is one of the market changes I’m most encouraged about in the moment, for people like first-time home buyers who are finally able to have some selection and not a crazy competitive market with pressures to act irrationally.

Yes, the market is still surprisingly strong for the homes that are priced properly. Still almost 20% went into contract immediately this week. But price reductions are climbing so quickly, the ones that don’t price right are going to have even tougher conditions later in the year.