Housing Market Trends
It is the home stretch of the 2024 housing market, and definitive trends have emerged.
Everyone seems to have an opinion about real estate. With so many differing viewpoints, from doom and gloom to surging markets, it is difficult to make heads or tails of the direction of the housing market. News articles with catchy headlines and YouTube channels devoted to negative narratives make understanding the current market even more confusing.
It is time to step aside from the constant buzz and look at the trends that have developed to wrap up 2024.
1. When mortgage rates drop below 6.5% with duration, demand will rise, and market times will drop. The housing market is very sensitive to rates. From April through the start of July, they were hopelessly stuck above 7%. Home affordability diminishes further at that level, taxing buyer demand and preventing homeowners from selling their homes. Fewer buyers can afford a home, and homeowners are unwilling to trade in their low, fixed-rate mortgage for a much higher 30-year rate. Even with the accumulation of more homes on the market and more choices for buyers, demand did not budge from last year’s levels. Year-over-year demand readings were nearly identical through mid-September. Yet, that changed as rates finally slipped below 6.5% at the end of August. In mid-September, they bottomed out for the year at 6.11%, the lowest level since February 2023.
Those low rates eroded in October with stronger-than-expected economic releases, from jobs to retail sales. They remained below 6.5% for 42 days, long enough to see a noticeable change in demand and the Expected Market Time, the speed of the market. When rates drop, they slowly work their way through the housing market. The longer they remain, the more significant the impact. From September 12th through October 10th, four weeks, demand (a snapshot of the number of new pending sales over the prior month) increased from 3,585 to 3,897, up 9%. The Expected Market Time (the number of days it takes to sell all Los Angeles County listings at the current buying pace) decreased from 100 to 92 days. Typically, demand slowly declines, and the Expected Market Time does not change much during the Autumn Market.
According to Mortgage News Daily, October has seen a reversal in mortgage rates, increasing from 6.2% on October 1st to 7% today. The rise comes from strong economic readings, speculation, and post-election positioning. The path of rates will continue to be volatile. Nonetheless, once rates drop below 6.5% with duration, the housing market will heat up with an increase in pending sales, more homeowners opting to sell, and a rise in closed sales.
2. The 2024 inventory peak has been delayed yet again. The higher mortgage rate environment has not allowed enough pending sales activity to cut into the active inventory. Typically, the Los Angeles County inventory peak occurs between July and August. Once the kids go back to school, the supply of available homes slowly drops for the remainder of the year. It plunges lower from Thanksgiving through New Year’s Day. This year, the inventory grew from 10,526 on July 4th to 12,106 today, up 15% or 1,580 homes. The rise in mortgage rates during October, just like 2022 and 2023, has cut back on demand. When fewer pending sales occur, the inventory accumulates and does not properly descend. The fewest number of homes are placed on the market in November and December. With fewer homes coming on the market and a rush of unsuccessful sellers throwing in the towel just in time to enjoy the holidays, the inventory finally falls to finish up the year.
Expect the inventory to peak within the next couple of weeks, similar to last year when it peaked on November 9th. It will fall along the same trajectory as last year and start 2025 similar to the January 1, 2020 level, before the start of COVID.
3. Negotiations have shifted more toward the
buyer's favor as the year winds down. The Expected Market Time dropped
to 60 days at the end of March. Back then, homes had plenty of showing
activity, and there were many more multiple-offer situations. Flash forward to
today, and the Expected Market Time has risen to 97 days. It was at 92 days
just a couple of weeks ago as the sub-6.5% mortgage rates worked through the
market. Yet, with rates back up to 7%, the market has slowed.
Since the end of March, the inventory has increased from 7,748 homes to 12,106 today, up 56% or 4,358 additional homes. At the same time, demand has fallen from 3,857 pending sales to 3,757 today, down 3%. With the inventory surging higher and demand slowly falling, the speed of the market has slowed substantially since spring. As a result, many homes are languishing on the market without success. An eye-opening 32% of the active inventory has reduced the asking price at least once. The median price drop is 4.57%. That is equivalent to a reduction from $1,000,000 to $954,300. The number of sellers who have thrown in the towel and pulled their homes off the market due to a lack of success is up 60% through today, an additional 6,269.
This is the most buyer-friendly market since the end of 2022 when rates were screaming higher. There are more choices, along with sellers who have been on the market for much longer. The longer sellers remain on the market, the more apt they are to negotiate and accept a buyer's terms.
The bottom line: steer clear of all the hype, narratives, and differing market views. Instead, lean in on data, statistics, and trendlines and continue to look for changes. Let the data speak for itself and allow it to set market expectations properly.
