The unexpected strength of home prices this year

We track inventory and home sales very closely, so the biggest surprise this year has been the resiliency of home prices. 

Given the unrelenting mortgage costs, generally weak homebuyer demand, and the year’s rising supply of unsold homes, I’ve been expecting home prices to recede a bit in the second half of this year. They have not. That’s an important lesson to learn from when looking into next year. All the dominant trends in the housing market this year seem like they would indicate home prices declining. With just a few local market exceptions, home prices nationally will finish the year up again and will go into 2025 with some upward momentum.

Home prices ticked up this week. The median price of the homes that went into contract this week — these are the new purchase offers with contracts pending —  is now 6% greater than last year. 

As mortgage rates have spiked in the last few weeks, and as the price paid for homes creeps upward, the mortgage payments required for the median-priced home in the country are on the rise again. Affordability is not catching any break. Payments on a median-priced home in this country jumped by 1.5% this week. 

However, even though home prices are higher than last year at this time, payments are 6% cheaper than last year at this time. Last year, in the fourth quarter, and then again in May this year, homebuying costs were the absolute worst.

Let’s take a look at the data for the end of October 2024.

Inventory ticked down this week

Inventory ticked down to 738,000 from 739,000 last week. Our model had expected inventory to climb just a bit this week. We could still see another bounce up week in inventory, but we’re near the peak for the year. Florida had an uptick in inventory with a bit of a rebound in new listings now that the storms are over. 

This year has maybe only just peaked in inventory. As a result, we’re now only 21% fewer homes on the market than this point in 2019. Maybe next year, if mortgage rates stay in the high 6s, inventory will build closer to the old normal after five years of a severe shortage. If mortgage rates fall, say into the 5s, I expect that demand will pick up faster than supply, and inventory will shrink again.

Last year, when rates were rising to 8% in October, inventory was also rising pretty quickly even this late in the year. Last year, the unsold inventory was piling up each week; this year the market is much more stable. This year’s mortgage rate moves are smaller than last years.

New listings go up

This year continues to have slightly more sellers than last year but fewer than we used to get in past years. There were 60,000 new listings unsold this week for single-family homes. That’s roughly the same as a week ago and just 6% more than last year at this time. With the holidays rapidly approaching, the new listings volume falls off pretty sharply from here through January.

There were another 9000 new listings/immediate sales this week. These are the homes that got listed for sale and took offers and went into contract within just a few days of listing. They’re already in contract, so they don’t add to the active inventory. There are immediate sales in any market, the best homes at the right price always go quickly, but the immediate sales pace now is down significantly from the pandemic times. That’s an indication that homebuyers don’t see any urgency in making offers. Overall, the days spent on market is 24% higher now than a year ago. 66 vs. 53 days.

When you add it all together, there were just a 2% more new sellers hitting the market this week than a year ago. I mentioned that Florida rebounded this week with sellers that postponed for the storms. Texas and California new listings volume is ticking down as you’d expect for autumn.

So, there are slightly more sellers this year, but inventory was building faster last year.

New pending sales are holding up

Sales rates are holding up pretty well, given the recent disappointing trend in the cost of money. There were 59,000 new pending home sales for single-family homes this week with another 12,000 condo sales. The sales rate is inching lower for the season, but still performing better than the last two years.

Home sales are not strong, of course, but we might see a little normalization. Mortgage rates are 120 basis points lower than they were a year ago. Sales are coming in a little better each week compared to last year and 2022.

The takeaway for home sales — each week is looking better than the last two years. At some point, this momentum will show up in other headlines.

Prices stay strong

As I mentioned, it’s been surprising (especially in the second half of this year) how resilient home prices have been. As homebuyer demand has stayed muted, supply of unsold homes has risen. I’ve talked about rising inventory, slightly more sellers each week, longer days on market, fewer immediate sales — given all this data, you’d expect that would mean that prices would be subsiding at least a bit, but in general, across the country, home prices are not subsiding. 

The way to look at it is: Homebuyers are buying homes at these prices. See this year’s line —where prices are staying around $390,000 as the median price for the new pending sales here into late October? Compare that to the price curves of either of the last two years — fourth quarter in 2023 and especially 2022. You can see how much more stability is in the market now.

The median price of the homes newly in contract this week is $389,900. That’s up a fraction from last week and is 6% more than last year at this time.

The median price of all the homes on the market is $439,000. That’s down a tick from last week and is slightly above last year at this time. If you walk into the housing market today and want to buy a home, $439,000 is the median price. The sweet spot price that people want to pay is always slightly less than what’s available.

One fascinating insight about home prices this year is that the sale-to-ask price ratio is much less than the last two years. In other words, buyers are showing their willingness to buy at these current prices.

Price reductions defy expectations

We’ve been exploring today how the price signals keep defying my expectations. The leading indicators of future prices are showing a similar pattern of price stability. As of this week 39.5% of the homes on the market have taken a price cut. That’s up just a tiny fraction from last week. And has been basically unchanged for 12 weeks.

Price reductions, while a little elevated, are not climbing. There are still slightly more homes on the market now that have taken a price cut than last year at this time. I think this relative stability reflects the fact that no sellers are surprised by this market.

The big change in rates was 2022. Two years ago, despite those of us shouting about how sellers would need to get ahead of the changing market, many sellers were nonetheless still surprised, overpriced, and had to cut their prices in the fourth quarter when mortgage rates jumped again. That 2022 line is so clear on this price reductions chart. 

It’s also true that most home sellers continue to be in a position of strength and this price reductions data is a good illustration of that fact. If your home is on the market and you’re not getting the price you want, you can cut the price or you can withdraw the listing to try again later. Withdrawals are a significant factor here.

It’s wild how quickly the sentiment can change. As of now, 2024 looks like home prices are holding firm nationally and inventory is roughly peaked for the year. What if strong economic news drives mortgage rates back over 7%?  We know that buyers can put the brakes on very quickly.

Mike Simonsen is the founder of Altos Research.