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Marty and Max: Where is the market going?

by MARTY WALKER
| September 1, 2023 1:00 AM

Where is the market going and how will the year-end? Is the market going to crash? How will the market react to 7.25% rates or perhaps 8% rates? Will inventory increase?

Last year the real estate market ended with a thud. Our team’s analysis is as follows. There were few buyers, and after the first of the year, we had more buyers than sellers. In the past few months mortgage rates have been above 7% and buyers and sellers are sensitive to the higher rates. The current inventory nationally is 492k single-family homes. This year, we did not see the lowest inventory level until April due to having more buyers than sellers in the first half of the year. There are 10% fewer homes on the market than this time last year. Last year rates increased in September and this change in rates resulted in a rise in inventory. We have 50% less inventory than in 2019. If mortgage rates rise as they did last year, expect a repeat of last year's rise in inventory. If rates remain the same, we should have a normal seasonal curve of 10-20% fewer homes on the market. The question everyone wants answered is when we will have more inventory. Most believe that once rates come back down, the result will be more inventory. The data shows the opposite. Lower rates result in lower inventory. From 2018-2019 rates increased and inventory followed. In 2020 rates fell dramatically and inventory fell dramatically. Last year rates climbed, and inventory followed. We expect inventory to increase seasonally and taper off towards year-end. If rates fall, we will have more buyers and less inventory. Our forecast is the year will end with about 400k homes on the market. If you are waiting to buy during the big crash, you may be waiting a while. We do not expect a crash any time soon.

New Listings — During the pandemic the defining characteristic was the immediate sale. These accounted for about a third of the market, essentially going under contract within hours or days. At the end of last week, this decreased substantially. It grew in the first part of this year, and folks in April continued to believe that the market was going to tank, however, it did not. Last week’s new listings were 74k with 14k going under contract immediately. Immediate sales are the demand indicator and the measure of how many buyers are competing. Buyers are responding to the interest rates and are slowing down.

Unsold Listings — Our sales rate is low. Demand is down. This is a supply-constrained market. We cannot simply use NAR’s sales rate alone and need to also consider the immediate sale. Last year when rates rose in September buyers slowed. Those looking to wait for the bust must wait for the normal number of sellers but there is no sign this will happen soon.

Pendings — There are 364k single-family homes under contract. 10% fewer than last year at this time. There were 62k new contracts last week, 11% fewer than last year. We are not gaining ground on last year’s total number of homes under contract. This is another signal that says buyers are sensitive to rapid rate changes. Buyers respond to the rapid change in rates as they did in September of last year. Recently rates have inched up resulting in offers inching down.

Price Reductions — Price reductions typically occur at this time each year. Each week there are slightly fewer buyers therefore sellers reduce their prices. This year follows the trend. Last year this started climbing in March, telling us the pandemic frenzy was over, in September it spiked again, telling us that demand had stopped with higher rates. This year the market recovered rapidly with a floor in prices. This is a great indication of future prices. Currently, there are 35.5% nationally, which is in the normal range, however, in August, it has risen faster than in recent years, telling us that sellers are seeing fewer buyers than anticipated.

Sales prices in the future should not fall due to asking prices stabilizing, much more so than last year. The prices of newly listed homes are 1.3% higher than last year. This is a leading indicator of where sales prices will be in the future. At the end of this year, we expect home prices to be up from last year unless, of course, rates soar. The annual price appreciation should increase. If rates soar above 8%, however, home prices will fall, as buyers are willing to accept a little less. The opposite is true if rates go lower, you can expect more buyers, less inventory, fewer price cuts, higher prices, and a Happy New Year to All!