What’s up everyone?
According to Redfin, Pending home sales fell 35% year over year during the four weeks ending October 23. This is the largest annual decline in at least 7 years.
This is a huge number because it shows how low buyer activity is right now which will dictate the trend of the housing market over the next few months going into 2023.
So today we’re going to take a look at Redfin’s latest housing market update and see what else is happening right now and where the housing market is heading into the future.
So lets dive right in
“Until this month, the pullback in the housing market could be described as something of a return to pre-pandemic conditions before sub-3% mortgage rates ignited a homebuying frenzy in 2020 and 2021,” said Redfin Deputy Chief Economist Taylor Marr.
“But now both mortgage purchase applications and pending sales are below 2018 levels. A four-year setback is a serious correction. With mortgage rates still elevated, we are in for further sales declines, but those should eventually bring price relief to those who need to move this winter.”
So what Taylor Marr is saying is that if buyer demand continues to weaken, prices will HAVE to come down to re-incentivize buyers to return to the housing market.
This is good news for those buyers who have been priced out of the market due to affordability issues. Once rates started their upward trajectory and prices still hadn’t come down, a lot of buyers simply could no longer qualify for a loan or just didn’t want to pay the higher monthly amount that was now required.
If prices come down enough to allow buyers to qualify for a loan with the current rates, and therefore make buying a house affordable, this could be a good thing to get the housing market going again.
The other thing that a slower market allows is the opportunity for buyers to negotiate. Unlike the past 2 years where buyers had no power and basically had to buy a house without an inspection while bidding way above asking, now, buyers can look around, and can negotiate for a lower price. They can have inspections and negotiate repairs or a credit and even ask for seller help to buy down their interest rates.
The problem is inventory.
According to Realtor.com, Active inventory has continued to grow, increasing 36% above one year ago. But NEW LISTINGS are down again, dropping 13% from one year ago.
This week marks the sixteenth straight week of year over year declines in the number of new listings coming up for sale.
Now, on the one hand, traditionally, the market slows down as we enter the holiday season which will start in a few weeks but this big of a decline is more than just seasonal.
So houses are staying on the market longer (which is the growing active inventory), but a lot less sellers are actually putting their homes on the market.
One of the reasons sellers are not putting their homes on the market is because they are “locked in”. This means they don’t want to trade in their Low interest rate, if they refinanced in the last few years it could be as low as 2.65-3% – for a higher one of around 7%.
The other reason is If prices go down too much, sellers won’t want to sell unless they absolutely have to for a job or a family situation.
And we can’t count on new construction for inventory.
According to the national association of home builders, builder confidence has declined for ten consecutive months .
“New home sales are down 14.3% on a year-to-date basis compared to 2021,” said NAHB Chief Economist Robert Dietz. “Moreover, sales are now down 1.9% on the same basis compared to 2019 levels that were prior to the Covid-related changes to interest rates.”
With rising lumber and construction costs, the median new home price was up 13.9% from a year ago. So, sales are down, but homes are still expensive.
However, it does look like builders are starting to understand the changing market and are beginning to cut their prices and offer incentives now that the market has changed.
Let’s get back to Redfin and look at the leading indicators of home buying activity for the week ending October 27.
As we said at the beginning of this video, Redfin reports the largest drop in Pending sales in at least 8 years
Look at the blue line where we were a year ago. It’s pretty similar to the grey line which represents 2020. But the red line is way less for the same time of year.
I expect it will only get worse as we enter into the holiday season.
- The median home sale price was $365,725, up 5% year over year, but down 7% from a record high of $392,250 in June.
- Home-sale prices FELL from a year earlier in six U.S. metro areas: Prices declined 5% year over year in San Francisco, 3% in Lake County, IL, 2% in Oakland, CA and less than 1% in San Jose, CA, Philadelphia and Frederick, MD.
- Among metro areas with at least 500 pending sales during the period, pending sales fell the most from a year ago in Los Angeles (-59%), Las Vegas (-56%), Miami (-50%), Seattle (-50%), Jacksonville, FL (-48%) and Portland, OR (-46%).
- On average, a record 7.9% of homes for sale each week had a price drop, up from 3.8% a year earlier.
- New listings of homes for sale were down 21% from a year earlier, the largest decline since May 2020.
I’m not sure why Realtor.com reports a decline of 13% new listings while Redfin is saying 21%. I thought they pulled their data from the same sources. I’ll look into it and report back.
- Months of supply—a measure of the balance between supply and demand, calculated by dividing the number of active listings by closed sales—increased to 3.1 months, the highest level since June 2020.
This is going to differ from market to market. Where I am in Montgomery County MD, we have 1.3 months of supply right now.
If you know the data where you live, definitely comment below and let us know.
- Homes that sold were on the market for a median of 34 days, up a full week from 27 days a year earlier and the record low of 17 days set in May and early June.
I expect this number will increase as we enter into the holiday season unless sellers pull their homes from the market and wait until spring.
- 29% of homes sold above list price, down from 44% a year earlier and the lowest level since February 2021.
I thought this was really interesting. Like I always say, real estate is very localized. Where I am, if a house is priced right and looks good, houses are still selling with multiple offers and escalating way above asking.
What about where you live? Are you still seeing multiple offers?
- The average sale-to-list price ratio, which measures how close homes are selling to their final asking prices, fell to 98.9% from 100.5% a year earlier. This was the lowest level since August 2020.
So, clearly things are changing. Look at 2020 and you can see how things start to ramp up. Then 2021 and the beginning of 2022. And now it looks like a steep downhill trajectory since June of this year.
With the high interest rates and prices still too high, affordability is at an all time low. Are things changing, yes, of course. But to what extent? How far will the Federal reserve go to fight inflation?
And if they keep raising rates, will anyone want to buy or sell? And what is the other option? Rents are also at an all time high.
We need something to budge.
And I think builders could lead the way with giving buyers incentives and attracting them to re enter the housing market. Sellers can also help with offering seller help to buy down the interest rate for the buyers.
If you are thinking of buying or selling now, you need a professional more than ever to help navigate the different ways to negotiate and get the sellers and buyer to meet in the middle.
I hope you got some value out of today’s video!