We are optimistic that later in the year, the economic news relaxes a bit and rates fall closer to 6% or even under that. Those scenarios are possible, and it’s going to be fascinating to see how the bond markets react to new administration policies. Right now, the sentiment is bearish. Bond markets have driven mortgage rates back to the highs, and home sales are suffering. Sellers are up, but sales are down.
The impact of the Los Angeles fires
Before we dive into this week’s data, I should say that the impact of the Los Angeles fires is something we will be studying. Though it’s too early to see any change in the data now, there are some signals we’ll be watching. First thing to note is that California has very restricted inventory. Prior to the fires there were only 17 houses for sale in all of Pacific Palisades, for example. This is different from a hurricane hitting Tampa where the real estate market is big enough to move the needle on national numbers. There are only 6,000 homes for sale in all of LA county, which has nearly 3% of the country’s population and less than 1% of the homes for sale.
One way in which this disaster may impact the national numbers is that, of the thousands of homes destroyed, many are $3 million dollar homes. Nationally, there are only 16,000 homes over that price available anywhere in the country. Over time, we could see demand impact in other parts of the country for the limited homes in this price range. We might see a resurgence of the Zoom towns like Boise and Salt Lake City that boomed during the pandemic as destinations for people leaving Southern California.
We also will be watching in LA for things like price Increases to see if the remaining homes for sale in the area see a price boost because of a sudden flood of displaced people.
Our hearts go out to everyone impacted in the fires. I have friends who have lost everything, and it’s tragic. Over time, our job at HousingWire will be to help everyone understand the market and financial impact that we can measure.
Let’s look at this week’s housing market data:
Inventory dips
Total inventory dipped this week to 624,000 single-family homes on the market. Total inventory dipped because of withdrawals, not always because of purchase demand. It’s early in the year and the New Year’s market is still emerging, but I expect next week will see an inventory increase.
There are now 24% more homes on the market than a year ago. We’re expecting inventory to grow for 2025 and end the year with about 15% more homes on the market.
If mortgage rates stay in the 7s for long, we expect inventory to grow faster, and we’ll have to revise our 2025 inventory forecast higher. This week inventory dipped though, so we’ll see what happens next.
New listings jump
The supply story in real estate must take into account the new sellers each week. This week, there were 45,000 new listings for single-family homes across the country, which is a big jump from New Year’s week.
There were 12% more sellers this week than the same week in early January 2024. It seems like more sellers are coming out every week, and 10-12% more sellers each week gets us back to normal pretty quickly. More sellers than that might trigger price pressure. Home prices could fall.
We should note that there were more condo new listings this week than we’ve seen in the same week of January in 10 years.
I do not expect a flood of new sellers, but we do see growth. There were 45,000 new listings this week, if there are more than 50,000 new listings next week, that would be notable.
Pending home sales drop
There were just under 41,000 newly pending contracts for single-family homes this week. That was 3% fewer than the same week a year ago. So there were 12% more new listings and 3% fewer sales started. This is a very notable change from late last year.
There are just 252,000 single-family total homes in the contract pending stage. That’s basically unchanged from a year ago.
I’ve talked about how we expect about 5% home sales gains for the year. That means 4.2 million home sales in 2025 up from 4 million. That’s the momentum we had in the fourth quarter, but January is starting with no gains. That forecast is something we’re keeping our eyes on. Mortgage rates continue to climb, and we can definitely see the impact on transactions.
Home sales should pick up next week as we inch closer to the spring.
Home prices a smidge lower
The median price of the homes that started contract for sale this week is just under $375,000. It was a smidge lower than a week ago, and barely above the prices paid a year ago at this time. By this measure, the weekly new pendings price have been about 4-5% higher than a year ago. Now they’re looking at a 2% yearly increase.
The demand impact we can see with transaction volume looks like it’s manifesting in fewer sales and also in weaker sales prices. With more homes on the market and fewer offers, home prices are not appreciating.
The median price of all the homes in contract is $395,000 which is just under 4% more than a year ago. Those 252,000 home sales will close mostly in January and February.
The takeaway in home prices is that, as we roll into the new year, there is almost no momentum for home price gains right now.
Price reductions tick down
As we start the new buying season, fresh inventory gets listed and a lot of the stale stuff is withdrawn over the holidays. As a result, the percentage of active listings with price reductions will continue to tick down for the next several weeks. Even though we see weakness in sales prices, there are relatively fewer sellers taking a price cut each week. This week, 33.9% of homes on the market have had price reductions from their original list price.
In the next few weeks, watch the slope of the change in addition to the absolute level. There will be more fresh inventory next week so the percent with price reductions will be fewer. But if a bunch of the existing listings aren’t getting offers, those will cut their prices and the slope of the dark line will be less steep. That’s what I’m expecting.
There is very little in the data right now that sees home sales or home prices heading higher. The signals are pretty bearish right now. Hang in there.
Mike Simonsen is the founder of Altos Research and will be a featured speaker at the Housing Economic Summit in Dallas on Feb. 26. Learn more here.
