The housing market is in a very pronounced, very broad slowdown. Mortgage rates dipped this week from 7.5% to 7.3%, but they are still higher than at almost any point in the last 20 years. Hot inflation data, low unemployment, rising oil prices, and growing expectations of another Fed rate hike all suggest the cost of money will stay high. The demand indicators are still moving lower, and none of them has turned the corner yet.
That raises an important question: when does a slowdown in sales show up in prices? The short answer is that it is starting to show up now, but slowly. Nationally, home prices are better described as flat than falling, because sellers have chosen to sell fewer homes. Recent buyers don't want to sell at a loss, and owners with ultracheap mortgages are locked in.
here are a few insights that stood out:
Pending sales keep slowing. We are averaging 12% fewer sales than the same period a year ago. The four-week average is only 66,000 contracts per week, compared to 72,000 last year, a pace comparable to 2022. Year to date we are still about 1% ahead of last year, but 2026 looks on pace to end negative.
Inventory climbed three quarters of a percent this week to 1.14 million homes, 5.2% more than a year ago. Inventory growth this late in the year is very unusual. The only other time we have seen it was 2023, the last time mortgage rates climbed into the upper 7s.
Price reductions are rising too. Over 43% of homes on the market have taken a price cut, up 20 basis points for the week and the highest October level in many years. The increases are sharpest in markets that have had the tightest inventory, like DC and Chicago.
Prices are starting to follow. The median list price is $435,000, 1% below where it has been for two years. The median price of single family homes going into contract is $394,000, down half a percent for the week and about 1.2% below last year. In many years prices get a small boost in October. This year, as in 2022, they are ticking lower.
Closed sales prices are the last to move. With an average of 42 days in contract, homes going into contract now will close in November, December, or January, so this softness will likely show up in sales price headlines after the new year.
The takeaway: Demand is falling, inventory is growing, and the four-year era of low demand and stable prices may be starting to change. For buyers, sellers who don't want to wait for spring may be open to a deal. For sellers, pricing competitively from the start is more important than ever.
Disclosures:
All material is intended for informational purposes only and is compiled from sources deemed reliable but is subject to errors, omissions, changes in price, condition, sale, or withdrawal without notice. No statement is made as to the accuracy of any description or measurements (including square footage). This is not intended to solicit property already listed. No financial or legal advice provided. Equal Housing Opportunity. Photos may be virtually staged or digitally enhanced and may not reflect actual property conditions.
