Weekend Talking Points - 'Blip?'

October existing home sales increased on a year-over-year basis for the first time in more than 3 years. That’s great news, but it’s hard to say if that’s just a ‘blip’ (mortgage rates have risen sharply since then) or a real bottoming in transaction volumes. Happy Thanksgiving all!

Where the buyer’s markets are. According to Zillow’s latest Market Heat Index, the number of markets where buyers have the upper hand in negotiations (more inventory, less competition) has expanded beyond Florida and Texas to include Atlanta, New Orleans, Louisville, Memphis and Nashville. [Zillow]

(Blip 1?) Builder confidence moves higher. The National Association of Homebuilders’ confidence index rose from 43 → 36 in November (>50 = bullish), the third-straight month of improvement. Future sales expectations leapt to their highest levels since April 2022, with builders optimistic about reduced regulations post-election. [NAHB]

After the “bombshell” NAR settlement. So far, buyside commissions have barely budged (2.59% on average). So was all this whole class action lawsuit and settlement much ado about nothing? Or will it just take longer to see the impact? [Mike DelPrete]

(Blip 2?) Existing home sales bounce on lower rates. Existing home sales rose 3.4% month-over-month in October, boosted by lower mortgage rates during August and September. While that’s good news, it’s important to remember that: 1) mortgage rates have gone way up since then, so this could just be a blip, and 2) we’re still only selling homes at a pace of <4 million units per year, which is extremely low by historical standards. [Source: NAR]

Median sales prices flattish. The median sales price for existing homes in October rose just 0.1% MoM to $407,200. But that was still UP year-over-year by 4.0%. Looking at the regions, the Northeast saw the strongest price growth (+7.6% YoY to $472,900), and the South the weakest (+0.9% YoY to $361,200). [NAR]

(Blip 3?) Competitive intensity moved higher. The Realtors Confidence Index for October showed a slight (but unseasonal) rise in competition levels: greater % of homes sold in less than a month, higher number of offers per sale, higher % of homes sold above list price. That said, competition levels are still well below the same time last year. More on this later. [NAR]

Tough time for first-timers. The combination of higher mortgage rates and ceaselessly rising home prices has made it tough for first-time buyers to get involved. In October 2024, only 27% of the homes sold were to first-timers. Pre-pandemic, that figure ranged from 30–35%. As a result of this ‘pricing out’ effect, the median age of first-time buyers has climbed to 38 in 2024 (from 35 in 2023 and 31 in 2014). [Source: NAR]

New home construction slipped. In October, housing starts fell 3.1% MoM (-4.0% YoY) to 1.3 million units (seasonally-adjusted annualized rate), with single family home starts up 0.5% MoM but multifamily down 3.0% MoM. Storms in the South hampered construction. [Census Bureau]

Redfin sees home price growth. For the second month in a row, Redfin’s HPI (Home Price Index) saw national home prices rise 0.5% MoM in October. However, HPIs for 8 of the nation’s Top 50 metros did decline MoM (there were 13 down last month). [Redfin]

TP: 0.5% MoM may not sound like much, but that’s 6% if you annualize it. On a $400K home, that’s $24,000 of appreciation. I’d be happy with that. How about you?

Realtors Confidence Index for October

Competition levels typically peak around June. After June, inventory tends to build (days on market rises), there are fewer bidding wars, and a smaller percentage of homes sell for more than their listing price. You can discern that seasonality in most of the charts below. With that in mind, it’s worth noting that:

1. Competition levels are much lower than they were during the pandemic housing boom
2. Competition levels in October 2024 were slightly higher than they were in September 2024 (due to lower mortgage rates), but
3. Competition levels are a good deal lower than they were at the same time last year
4. Realtors are more optimistic about the future than they were at the same time last year (a sign that things could be bottoming?)

Outlook for Buyer Traffic
In October 2024, only 19% of respondents expected an increase in buyer traffic over the next 3 months. That was down slightly from 21% in September 2024, but still well above the 7% seen in October 2023. This all makes sense if you think about mortgage rates were doing at this time last year (peaking over 8%). So while Realtors are less optimistic in October than they were in September (because of mortgage rates rebounding), they’re a lot more positive than they were a year ago.

Average Number of Offers Received per Sale
The average home sold in October 2024 had 2.5 offers. That was up slightly from 2.4 in September 2024, but was the same as 2.5 in October 2023. In general, competitive intensity picked up slightly in October month-over-month as lower rates enticed buyers back to the market. The % of homes that sold in less than one month also moved up, from 57% in September to 59% in October.

Remember, two offers means that, on average, there was just one additional bidder (outside of the winner).

COVID High (2020–2022): 5.5 in April 2022
COVID Average (2020–2022): 3.8
Post-Pandemic Average (2023-): 2.8
October 2024: 2.5

% of Homes Sold Above List Price
19% of the homes sold in October 2024 transacted above their initial listing price. That was down slightly from 20% in September 2024, and significantly below the 28% in October 2023. The market is getting back to “normal” — where sales prices on average are 95–100% of the listing price.

COVID High (2020–2022): 61% in April 2022
COVID Average (2020–2022): 43%
Post-Pandemic Average (2023-): 25%
October 2024: 19%

Days on Market
The typical home sold in October 2024 had been on the market for 29 days. That was up slightly from 28 in September 2024, but up significantly from 23 in October 2023. Keep in mind that a higher number indicates a slower pace of sales (homes are lingering on the market longer). So homes are taking roughly 1 week longer to sell than they did last year.

Pre-Pandemic Average (2015–2019): 35
COVID Low (2020–2022): 14 in June 2022
COVID Average (2020–2022): 19
Post-Pandemic Average (2023-): 26
October 2024: 29

Mortgage Market

The market continues to be concerned about the potential re-inflationary impact of President-elect Trump’s policies, and the impact that might have on the Fed’s loosening plans.

Here’s what the Fed Funds Rate futures market is currently pricing in for future rate cuts. Note that the current Fed Funds Rate policy range (AFTER the 25 bps cut announced on November 7) is 4.50–4.75%.

• Dec 18 FOMC Meeting: 56% probability of another 25 bps cut. (Way down from 76% last week). 44% probability that Fed will stay on hold.
• Jan 29 FOMC Meeting: 53% probability that rates will be 25 bps lower than current (in other words, that there is just 1 rate cut, in either Dec or Jan, but not both).

They Said It

“The worst of the downturn in home sales could be over, with increasing inventory leading to more transactions. Additional job gains and continued economic growth appear assured, resulting in growing housing demand. However, for most first-time homebuyers, mortgage financing is critically important. While mortgage rates remain elevated, they are expected to stabilize.” — Lawrence Yun, NAR’s Chief Economist

“With the elections now in the rearview mirror, builders are expressing increasing confidence that Republicans gaining all the levers of power in Washington will result in significant regulatory relief for the industry that will lead to the construction of more homes and apartments. This is reflected in a huge jump in builder sales expectations over the next six months.” — Carl Harris, NAHB’s Chairman

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