Home sales have come to a standstill with 7% mortgages

Sales are slow, causing the stock of unsold homes to increase. The inventory of apartments is growing faster than that of single-family homes. Some markets are much slower than others. Let’s take a look at the Altos Research data for this week, mid-January 2025.

Stock has run out

There are now 632,000 single-family homes unsold on the U.S. market. That is 1.25% more than last week. There are almost 25% more homes unsold than a year ago. As I mentioned, the stock of unsold apartments is growing faster than that of single-family homes. There are 177,000 apartments on the market. That is 30% more than a year ago.

It’s not unusual for the stock to rise in mid-January, as it did this week. The holidays are over, some spring offers are coming out and there aren’t many sales yet. It is also common for the stock to drop again before the end of the month. And you can see that here in the pattern of every year.

Spring inventory growth usually begins in the second week of February. When the market is hot, as it was during the pandemic — there were more buyers than sellers in the first quarter — inventory continued to fall until March or April. Normally we expect that transition week to be in early February.

One signal I’m watching in the current market is whether inventory is increasing now. If the stock rises again next week, it will be another signal of weak demand due to high mortgage rates. Our model expects inventory to decline next week, just like in a “normal” year. Stay tuned because we’ll get another signal next week.

New offers lower than last week

Inventory is growing because of weak demand, not because of supply growth. It even seems that the high mortgage interest rates are also holding back new offers. There were only 46,000 new listings for single-family homes this week with another 7,000 direct sales.

The immediate sales are the sales that are listed and taking offers within a few days, so they are no longer in active inventory. There were now 2% fewer sellers than the same week a year ago, but 3.6% more of those new listings are unsold than a year ago. So slightly fewer sellers, but the stock is growing faster than last year.

There are two risks to this housing market that we should watch for in the new listing data each week. Are there too many salespeople or too few? Too few sellers keep the market limited and drive prices higher. That is changing. For most of last year there were 5% to 10% more sellers than the year before. We expect this to remain the case.
On the other hand, if we see a flood of sellers – too many sellers – that would quickly increase inventory and potentially trigger a decline in home prices. I don’t expect this scenario.

I should point out that the Los Angeles fires don’t really impact the national housing numbers. For example, there are typically fewer than 10 new listings per week in Pacific Palisades, even during peak season. Although many homes have been destroyed, the owners of those homes usually never sell them. So the impact of the Los Angeles fires will extend over months and years, but it will be difficult to see in the weekly numbers as new listings count. It was much easier to see the hurricane’s impact because Tampa and West Florida have a much more robust housing market than California.

Pending home sales are slow

Let’s look at home sales, that’s the story of the moment. Only 45,000 contracts were started this week for the purchase of single-family homes. That is 10% less turnover than the same week a year ago. This is a very slow start to the new year.

Overall, the number of homes still pending is just over 257,000, which is almost 2% less than a year ago. The weekly readings have been low for more than a month now that the entire bunch is under contract.

In 2024 we counted 49,000 new applications; this year we count 45,000. Mortgage rates rose to the 7s in December, and we could see that.

House price gains evaporate

The sales growth we measured in the fourth quarter has disappeared, and house price gains from 2024 also appear to have largely evaporated.

The average price of homes that went under contract this week – new home sales – is $375,000. That is essentially unchanged from a year ago, an increase of just half a percent. Normally at this time of year you would expect sales prices to rise every week. You get new inventory, the early spring buyers are looking, and that usually drives sales prices up in the first quarter. But this year the price pressure is much weaker. Demand is weak and there is no upward pressure on sales prices. In normal years, house prices rise about 5% compared to the previous year. This year is off to a much weaker start for house prices than normal years.

The average price of all 257,000 homes in contract is $394,000. That number is still 3.6% more than a year ago. Many of them signed contracts in November and December. What it means is that even though the real-time signals for home prices are flat, the headlines for January when the news comes out in a few months – like the Case-Shiller Index – will still show a small positive move in the housing market to see. prices.

Again, the real-time measurement concerns the current contracts – the phase before the sale is closed. The current price is the best early indication of sales prices in the near future. We can also look at the data that is more leading. For example, we can look at the cohort of homes that were newly put on the market in the week in question and see where they are priced. Looking there, the new listings don’t show much optimism. The average price of the newly listed cohort stood at $409,000 this week. That’s an increase for the week, but only 2.5% more than a year ago.

The conclusion about house prices is that everything is under pressure with mortgage interest rates above 7%. The price metrics haven’t turned negative, but that could happen soon.

Price reductions tell the story

Looking at the leading indicators for future sales prices, I track price reductions. This week, the percentage of homes on the market with price reductions eased by just 50 basis points. There has been a slowdown in the number of new listings and those in the market are making further price cuts. This does not bode well for future sales prices. Normally this time of year you see a lot more strength in prices with new offers and some sales. You can really see a stalled homebuyer market in the price reductions right now.

There are 33.5% of homes on the market that have undergone a price reduction from the original list price. Last year it was just 31% and that number dropped a little faster each week as more sales were made.

As I said, I saw 10% fewer purchase offers this week than a year ago. That’s thousands of sellers who didn’t get an offer this week. Many of them choose to lower their asking price to see if they can generate demand.

This time of year the markdown line normally moves downward with new inventory. Newly listed homes only lower their prices once they have been on the market for a while. But this trend is already affecting those feeling the pressure of higher mortgage rates. We see that buyers are waiting.

Mike Simonsen is the founder of Alto’s research and will be a featured speaker at the Economic top in the field of housing in Dallas on February 26. More information here.