New contracts for home purchases are coming in very low this month. We counted 10% fewer home sales for the week than the same week a year ago.
In the fourth quarter of 2024, sales were coming in at 5% to 10% more than the year prior. Those sales gains have evaporated and even reversed. Buyer activity has been dropping for several weeks and there are now fewer homes in contract than a year ago. Both the weekly new contracts and all the homes in the contract pending stage are below last year.
This housing market is on hold until mortgage rates come down. When will that be? I have no idea. We knew that mortgage rates over 7% were possible for the year, and here we are. I still expect we’ll spend most of the year under 7% for the 30-year fixed rate mortgage, but until that happens, home sales are at a standstill.
There’s signal that the price buyers are paying is declining too. I’ll share some of those signals in a minute.
Sales are slow, so inventory of unsold homes is building. Condo inventory is growing faster than single family. Some markets are much slower than others. Let’s look at the Altos Research data for this week, the middle of January 2025.
Inventory is up
There are now 632,000 single-family homes unsold on the market around the U.S. That’s up 1.25% from last week. It’s almost 25% more homes unsold than a year ago. As I mentioned, inventory of unsold condos is growing faster than that of single-family houses. There are 177,000 condos on the market. That’s 30% more than a year ago.
It’s not uncommon for inventory to tick up in mid-January like it did this week. The holidays are over, some of the spring listings come out, and there are not a lot of sales yet. It’s also common for inventory to dip again before the end of the month. And you can see that in each year’s pattern here.
Inventory growth for the spring usually starts by the second week of February. When the market is hot like during the Pandemic — there were more buyers than sellers in Q1 — so inventory kept declining until March or April. Normally, we expect that transition week to be in early February.
One signal I’m watching with this current market is whether inventory builds starting now. If next week inventory is up again, that will be yet another signal of weak demand as a result of the high mortgage rates. Our model expects inventory to tick down next week, as it would in a “normal” year. Stay tuned for that next week we’ll get another signal.
New listings lower than last week
Inventory is building because of demand weakness, not because of supply growth. In fact, it seems like the high mortgage rates are holding back new listings, too. There were only 46,000 new listings for single-family homes this week with another 7,000 immediate sales.
The immediate sales are those that are listed and take offers within a few days, so they’re no longer in active inventory. There were 2% fewer sellers now than the same week a year ago but 3.6% more of those new listings unsold than a year ago. So, slightly fewer sellers, but inventory is growing faster than last year.
There are two risks for this housing market that we should look out for in the new listings data each week. Are there too many sellers or are there too few? Too few sellers keeps the market restricted and pushes prices higher. That’s been changing. Most of last year there were 5% to 10% more sellers than the year prior. We expect that to continue. On the other side, if we see a flood of sellers — too many sellers — that would drive inventory higher quickly and could potentially be the trigger for home prices to fall. I don’t anticipate this scenario.
I should point out that the Los Angeles fires don’t really move the needle on the national housing numbers. For example, there are typically fewer than 10 new listings each week in Pacific Palisades even in the peak of summer. While a lot of homes were destroyed, the owners of those homes typically do not sell them ever. So, the impact of the Los Angeles fires is going to be stretched out over months and years, but it’ll be hard to see in the weekly numbers like the new listings counts. It was much easier to see the hurricane impact because Tampa and Western Florida have a much more robust housing market than California.
Pending home sales slow
Let’s look at home sales, which are the story of the moment. There were only 45,000 contracts started for single-family home purchases this week. That’s 10% fewer sales than the same week a year ago. This is a very slow start to the new year.
Overall, the number of homes in the contract pending stage is just over 257,000, that’s almost 2% fewer than a year ago. The weekly readings have been coming in low for over a month or so now the whole set that are in contract are fewer.
In 2024 we counted 49,000 new pendings; this year we count 45,000. Mortgage rates jumped into the 7s in December, and we could see it.
Home price gains evaporate
The sales growth we measured in Q4 is gone, and home price gains from 2024 are looking like they’ve mostly evaporated, too.
The median price of those homes that went into contract this week — newly pending home sales — is $375,000. That’s essentially unchanged from a year ago, up just half a percent. Normally, this time of year you’d expect sales prices to be moving up each week. You get fresh new inventory, the first spring buyers are looking, and that pushes sales prices higher in the first quarter — usually. But this year, the pricing pressure is much weaker. Demand is weak and there is no upward pressure on sales prices. In normal years, home prices rise 5% or so over the prior year. This year is starting out much weaker for home prices than normal years.
The median price of all 257,000 homes in contract is $394,000. That number is still 3.6% more than a year ago. Many of these entered into contract in November and December. What it means is that even though the real-time signals are flat for home prices, the headlines for January when the news comes out in a few months for metrics — like the Case-Shiller Index — will still show a little positive movement on home prices.
Again, the real-time measure is of the contracts pending — the stage before the sale closes. The pendings price is the best early proxy for near future sales prices. We can also look at the data that is more leading. For example, we can look at the cohort of homes that are newly listed in the given week and see where those are being priced. When we look there, the new listings don’t show much optimism. The median price of the newly listed cohort this week came in at $409,000. That is an uptick for the week but is just 2.5% more than a year ago.
The takeaway on home prices is that everything is under pressure with mortgage rates over 7%. The price metrics haven’t flipped negative, but they could soon.
Price reductions tell the story
When we look at the leading indicators for future sales prices, I track price reductions. This week, the percent of homes on the market with price reductions eased by only 50 basis points. There’s a slowdown in new listings and those on the market are doing more price cuts. This does not bode well for future sales prices. Normally at this time of year, you’d see much more strength in pricing with new listings and some sales. You can really see a stalled homebuyer market right now in the price cuts metric.
There are 33.5% of the homes on the market that have taken a price cut from the original list price. Last year, it was only 31% and that number was declining a bit faster each week with more sales getting done.
As I mentioned this week saw 10% fewer purchase offers than a year ago. That’s thousands of sellers who didn’t get an offer this week. Many of those choose to cut their asking price to see if they can generate demand.
This time of year, the price cuts line normally moves down with fresh inventory. Newly listed homes don’t cut their prices until they sit on the market for a while. But this trend now is capturing all those that are feeling the pinch of higher mortgage rates. We can see that buyers are waiting.
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.
