As housing inventory builds in the housing market due to waning buyer activity, home prices show little to no signs of letting up. And that’s creating more affordability headaches for homebuyers who are already sidelined by high mortgage rates.
For my full analysis of this week’s housing data, watch the 11-minute video above. Don’t have time? Here are four key takeaways about what the data is telling us.
Inventory continues to move up
Available inventory of single-family homes for sale this week rose to 535,000 units, up 1.2% from a week ago. Even though that’s a slight deceleration from recent weeks where week-over-week increases hit 2%, this is all happening late in the year, and we’re not done yet.
There are 5% fewer homes on the market now than last year, but inventory is climbing faster now than it was then. The total number of unsold homes on the market will keep climbing, probably for the rest of October on the same schedule as last year. This is an obvious indication of slower buyer demand amid higher interest rates.
None of the inventory increase is from a surge of sellers, though. That means that even as buyer demand slows way down again, sellers are holding back, too. As a result, home prices are facing only light downward pressure.
Inflation is cooling
Last week, we learned that inflation is cooling, and that’s good news for housing. The hope is that inflation cools at a pace that will allow the Fed to stop raising interest rates. And that means mortgage rate pressures will be lighter in the coming weeks.
It’s common now to hear 8% mortgage rates being quoted to potential homebuyers, and that’s inspiring a wait-and-see attitude as buyers are forced to sit on the sidelines. Fewer offers are being made, so inventory is building.
Sellers are slashing prices to get offers
It’s not uncommon to see more price reductions this time of year so sellers can close their home sale before the holidays. But this year, the pace of those discounts is accelerating.
Typically, 30% to 35% of the homes for sale take a price cut before they sell, and now 37.5% of homes on the market have had to cut prices. That means more sellers were surprised by weak buyer demand.
Home prices won’t crash anytime soon
Home prices are staying at or just above where they were last year at this time. The median price of all single-family homes in the United States is now $440,000, which is unchanged from last week and 1% higher than this time last year.
Meanwhile, the median price for new listings is $395,000 this week, up 1.4% compared to the same period a year ago. There’s not any new surge in sellers, so if you’re expecting a crash in home prices, you need more sellers listing their homes and buyers fleeing the market.
As of right now, the data is pretty clear. Inventory is growing to about the same level as the end of last year, and prices will end 2023 a little higher than 2022.
Mike Simonsen is president and founder of Altos Research.