With sales slowing down, the inventory of unsold homes is steadily increasing, especially in the condo market. Some markets are experiencing a much slower pace compared to others. Let’s delve into the latest data from Altos Research for the middle of January 2025.
Inventory on the Rise
Currently, there are 632,000 unsold single-family homes in the U.S. market, marking a 1.25% increase from last week and nearly a 25% surge from a year ago. The inventory of unsold condos is growing at a faster pace, with 177,000 condos on the market, reflecting a 30% increase from a year ago.
Typically, inventory tends to increase in mid-January as the holiday season concludes and spring listings emerge, coupled with a slower pace of sales. The trend usually reverses towards the end of the month, as illustrated by the historical patterns.
The anticipation for spring inventory growth usually kicks in by the second week of February. In a hot market scenario like during the Pandemic, where there were more buyers than sellers in Q1, inventory continued to decline until March or April. Normally, the transition week is expected to occur in early February.
One critical aspect to monitor in the current market is whether inventory continues to rise from this point onwards. If next week shows another increase in inventory, it would signal weak demand due to the impact of high mortgage rates. Our projections suggest a potential decline in inventory next week, aligning with a “normal” year. Stay tuned for the upcoming updates.
Decline in New Listings
The surge in inventory can be attributed to weakened demand rather than supply growth. High mortgage rates seem to be hindering new listings, with only 46,000 new listings for single-family homes this week alongside 7,000 immediate sales.
Compared to the same week last year, there are 2% fewer sellers, yet 3.6% more of these new listings remain unsold. This disparity indicates a slower pace of sales compared to the previous year, despite a slight decrease in sellers.
Two key risks to watch in the housing market are whether there are too many or too few sellers. A scarcity of sellers can constrain the market and drive prices higher, a trend that has been evolving over the past year. Conversely, an influx of sellers could rapidly elevate inventory levels and potentially trigger a decline in home prices, although this scenario is not currently anticipated.
It’s worth noting that the impact of the Los Angeles fires is unlikely to significantly impact national housing figures, as the number of new listings in affected areas remains minimal. The long-term repercussions of such events will unfold gradually over months and years, making them less conspicuous in weekly data reports.
Sluggish Pending Home Sales
Turning to home sales, the pace has been notably slow, with only 45,000 contracts initiated for single-family home purchases this week, marking a 10% decline from the same period last year.
Overall, the number of homes in the pending contract stage stands at just over 257,000, reflecting nearly a 2% decrease from a year ago. This trend of low weekly readings has persisted for over a month, indicating a decline in the overall number of pending sales.
Comparing the current year’s 45,000 new pendings to last year’s 49,000, the impact of the surge in mortgage rates in December is evident in the subdued sales activity.
Diminished Home Price Gains
The robust sales growth observed in Q4 has dissipated, with home price gains from 2024 also showing signs of evaporating.
The median price of newly pending home sales this week stands at $375,000, virtually unchanged from a year ago, indicating minimal growth. Typically, this period would see a gradual increase in sales prices, driven by fresh inventory and early spring buyers. However, this year’s pricing dynamics are notably weaker, with demand struggling to exert upward pressure on prices.
While the median price of all 257,000 homes in contract remains slightly higher than a year ago at $394,000, the momentum for price appreciation is subdued. Despite real-time indicators reflecting stagnant price trends, official metrics such as the Case-Shiller Index may still show modest positive movements in home prices when reported in the coming months.
It’s apparent that the current market conditions, compounded by mortgage rates exceeding 7%, are exerting pressure on home prices. While price metrics have yet to turn negative, the possibility of a downturn looms on the horizon.
Insights from Price Reductions
Monitoring price reductions offers valuable insights into future sales prices, with a modest 50 basis points easing in the percentage of homes on the market with price reductions observed this week. The trend of increased price cuts amidst a slowdown in new listings underscores a challenging environment for future sales prices.
Currently, 33.5% of homes on the market have undergone price cuts from their original list price, compared to 31% last year, indicating a more pronounced trend of price reductions. The decline in purchase offers by 10% compared to the previous year has prompted many sellers to adjust their asking prices in an attempt to stimulate demand.
Typically, the price cuts line would trend downward during this period with the influx of fresh inventory. However, the current trend encapsulates the challenges posed by higher mortgage rates, with buyers adopting a more cautious approach.
Mike Simonsen, the founder of Altos Research, will be a featured speaker at the Housing Economic Summit in Dallas on Feb. 26. For more information, click here.