Housing inventory under 1M again as sales collapse
On Friday NAR reported that total housing inventory levels broke under 1 million in December, dropping to 970,00 units for a population of 330 million people. And existing home sales crashed in 2022 from a peak of around 6.5 million in January down to about 4 million in December,
We now have total inventory levels near all-time lows again. In one of the most historical years in the U.S. housing market, we just experienced an event that most people never thought could happen. I know it sounds so simple, but even today, some people don’t understand that a home isn’t like a stock. When you sell a home, you need to find shelter because you need a place for your kids to sleep.
Total housing costs for American homeowners versus their wages are meager, and most will buy a home right away when they sell. Looking at housing this way, the last four decades make sense. The one period where this didn’t happen was from 2006-2011, when credit forced Americans to sell, to rent or to be homeless. Outside of that time period, everything else from 1982 to 2023 was normal.
If you believe people sell to become homeless, then you’re in the group of people that have simply not read housing data for decades. The lack of sellers is also a demand problem and what we saw after June of 2022 is that sellers called it quits earlier and faster in the year than usual, resulting in total existing home sales totaling 5,030,000 to end 2022.
From NAR: “December was another difficult month for buyers, who continue to face limited inventory and high mortgage rates,” said NAR Chief Economist Lawrence Yun. “However, expect sales to pick up again soon since mortgage rates have markedly declined after peaking late last year.”
The Federal Reserve wanted a housing reset, and it got a housing recession, with activity falling the fastest since the brief pause during COVID-19. During that period, we saw new listing data decline. However, in 2020 new listing data came back, and we don’t want to see the new listings continue to decline this year — that would be a double negative for the housing market.
Days on market growing
One of the reasons I called the housing market savagely unhealthy in 2022 was that houses flew off the shelves once they were listed. The days on market were too low. I have often said that anytime days on the market are at a teenager level, nothing good will happen. This means we don’t have enough housing inventory available because with lending standards back to normal we can’t replicate the credit demand we saw in housing from 2002-2005.
So the fact that we are back to an average of 26 days on market makes me happier. Also, this is what the Federal Reserve wants. The Federal Reserve did not like the homebuying atmosphere during COVID-9, especially the non-contingent buying contracts.
NAR Research: First-time buyers were responsible for 31% of sales in December; Individual investors purchased 16% of homes; All-cash sales accounted for 28% of transactions; Distressed sales represented 1% of sales; Properties typically remained on the market for 26 days.
Home price growth cooled off
Even though total housing inventory didn’t grow too much in 2022, rising mortgage rates cooled off the price growth very quickly and we are near all-time lows again. The Fed wanted a housing reset and rising mortgage riates did the trick, cooling off home prices toward the end of the year.
My 2022 price forecast was too low as mortgage rates didn’t cool down prices fast enough, something I outline in my 2023 forecast. However, now we can see more of a cooldown and days on market growing; both are key to my economic work around housing getting back to normal.
NAR Research: The median existing-home price for all housing types in December was $366,900, an increase of 2.3% from December 2021 ($358,800), as prices rose in all regions. This marks 130 consecutive months of year-over-year increases, the longest-running streak on record.
Housing inventory
With the days on the market growing, the monthly housing supply will grow back to a more traditional level. Even though the monthly supply fell to 2.9 months in Friday’s report, it’s up year over year from 1.7 months. Total housing inventory did break under 1 million to 970,000 units, but that’s up from last year’s 880,000 units.
The year-over-year housing inventory growth is a positive story for housing as the crazy marketplace before rates rose has faded away, and we are getting a more normalized marketplace.
NAR Research Total housing inventory at the end of December was 970,000 units, down 13.4% from November but up 10.2% from one year ago (880,000). Unsold inventory sits at a 2.9-month supply at the current sales pace, down from 3.3 months in Nov. but up from 1.7 months in Dec. 2021.
The report is in line with what I was expecting; even though existing home sales didn’t break under 4 million like I thought they might, it still shows that the backward-looking report is getting closer to a bottom than the start. We’ve talked about total housing inventory getting below 1 million for some time now and that we could see that in December and January.
We have had some significant shifts in the housing market since October, as mortgage rates, which peaked at 7.37%, fell to as low as 6.04% recently. Purchase application data also found a bottom to bounce off from as this data line has stabilized recently.
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