What to expect in the real estate market for the rest of the year

What to expect in the real estate market for the rest of the year

The last week of June is truly the peak of home buying season. Activity and prices typically begin their seasonal declines closely tied to the transition into the third quarter of the year. This coming week includes the July 4th holiday, which falls on a Wednesday, so the upcoming data will be a dip across the board. Inventory, new listings, etc. all fall during Independence Day, and the second half of the year declines. We’re at the peak now, and today we’ll take a look at the view from the top. What can we expect for the rest of 2024?

Home prices are flat this week. The number of new listings peaked a few weeks ago. While there won’t be a big drop in new listings in July, we can expect to see fewer sellers each week for the rest of the year.

House prices are likely to fall after next week. The seasonal peak for house prices is usually on June 30.

Because homebuyer demand is low this year, the available inventory of unsold homes will continue to rise through the end of the third quarter. So even if the number of new listings slows and prices fall again, the amount of unsold inventory will continue to grow for a few months.

Now that we’re in the second half of the year, let’s look at the details of the US housing market.

Stocks are up 1.8% this week

There are now 646,000 unsold single-family homes on the market in the U.S. That’s up 1.8% from last year and up 39% from last year. That’s an increase of 11,000 unsold homes for the week, which is a decent gain. It’s slightly higher than we were forecasting for the week, and I think it illustrates the continued, weak demand from homebuyers. It seems quite likely that inventory will continue to grow through October. In pre-pandemic years, inventory would have peaked in August, but it appears that seasonality has now shifted later in the year. This is especially true if mortgage rates continue to rise, which they appear to be doing now. Higher interest rates create more inventory.

Looking at inventory for the remainder of the year, we expect the market to peak in October with approximately 700,000 single-family homes in unsold inventory. We may end the year with roughly 20% more homes on the market than at the end of 2023. Last year we saw a surge in inventory growth at the end of the year when mortgage rates rose above 8% in October last year. If we see another increase in rates, we will end 2024 with 30% or 40% more homes on the market than the year before.

New entries slow

There were just under 71,000 new listings for single-family homes that were not sold this week. That’s down 1.5% from a week ago. Add to that the 15,000 direct sales and that’s a total of 86,000 sellers, which isn’t a whole lot. It’s up 8% from this time last year, but it’s not a lot. And it’s not going up.

There will be no major drop in new listings in July. It could be a few weeks with 70,000 or more new listings unsold. There are no signs of sellers accelerating.

The question is: how quickly will the sellers pull out? It’s helpful to compare this year to 2022 and 2023. In 2022, inventory really skyrocketed at the end of June – which sped up the sellers and slowed down the buyers. Both happened. But after July 4, 2022, the sellers pulled back and suddenly the inventory imbalance was much more balanced.

In 2023, the salespeople stayed away all year. That seller drought was the biggest story of 2023. Now we’re seeing elements of both trends. If this market goes completely out of control, more sellers are needed every week, and we’re just not seeing that. Inventory is growing due to weak demand.

If you believe that the housing market will again be hit by supply as people lose their jobs — that we will finally see growth in sellers when a recession comes — then that may be true. Two things to keep in mind: the data doesn’t show that right now, and there are no distressed sellers yet.

Pending home sales fell slightly

This week, 67,000 new contracts were started for the sale of single-family homes. That is a fraction less than last week and virtually unchanged compared to a year ago. So even if the number of new listings isn’t growing, neither is the sales volume. There is little encouraging on the demand side of the data at the moment.

What does this mean for the rest of the year? It means that house sales will remain around 4 million annually. This sales speed is a lot lower than I expected at the beginning of the year, and that is a function of the fact that mortgage rates remain high for longer.

House prices may fall in the coming weeks

The median price of home sales that started this week is $395,000. This is the price where people buy houses. House prices peak in June, so you can expect this number to drop further in the coming weeks and months. The question is how steep this curve decline is in the second half of the year. Two years ago we saw a rapid deterioration in home prices as mortgage rates skyrocketed.

Meanwhile, the average price of all homes in the U.S. is $455,000. That’s unchanged from last week and from last year. By this measure, Altos simply counts every home for sale in the country and takes the average price. As a leading indicator of future sales prices, the asking price is stable but not yet falling. I still expect it to, at least a little.

The average price of new listings this week was $429,000, up for the week and up nearly 4% from last year. Prices for new listings will drop during the July 4 holiday and then generally decline for the rest of the year.

Price reductions are increasing

While mortgage rates remain high, homebuyer demand remains weak. As a result, price cuts continue to rise across the country. About 38% of homes on the market have seen a price reduction from their original list price. That is 70 basis points more than last week. It’s quite high, but not disastrously high. It rises quite quickly, but not disastrously quickly.

At this point in 2022, when mortgage rates rose rapidly for the first time, price cuts were also rising at a rate of 140 to 150 basis points per week. Right now they are rising 50-70 basis points every week. The run-up of 2022 led to a decline in house prices in the first quarter of 2023. The run-up is now softer, but still real.

Looking ahead from what we can see here, I expect flat house price growth in the second half of the year. It’s hard to make that call because many of the price measures, like the above sales prices, haven’t started to compress yet. I expect them to, but they haven’t.

But that’s what we’re looking for in the second half of the year. These leading indicators point to weakness in house prices, even if the current measures have not yet really started to ease. Keep an eye on this information! I

Mike Simonsen is the founder of Altos research.