Market Cooling This Fall ?

As August 2023 reaches its midpoint, the real estate arena is witnessing intriguing developments that demand our attention. Over the past two months, mortgage rates have remained steadfastly above seven percent, prompting speculation about the potential repercussions for homebuyers. This blog post will delve into the insights shared by Altos Research's founder, Mike Simonson, shedding light on the intricate market signals, the influence of mortgage rates, and the prospective implications for the housing landscape.

Navigating August 2023's Housing Market: A Look at Mortgage Rates and Homebuyer Sentiment

As August 2023 reaches its midpoint, the real estate arena is witnessing intriguing developments that demand our attention. Over the past two months, mortgage rates have remained steadfastly above seven percent, prompting speculation about the potential repercussions for homebuyers. This blog post will delve into the insights shared by Altos Research's founder, Mike Simonson, shedding light on the intricate market signals, the influence of mortgage rates, and the prospective implications for the housing landscape.

Mortgage Rates and Their Impact on Homebuyers

The sustained elevation of mortgage rates has cast a shadow of uncertainty over the housing market. With rates hovering around seven percent, concerns about affordability have taken center stage, resulting in a discernible deceleration in sales volume. The gradual decline in buyers each week has contributed to a dip in sales volume compared to the previous year, marking a departure from the drastic slowdown experienced in the preceding year.

Deciphering the Data Signals

Altos Research has taken up the mantle of monitoring and analyzing a wealth of real-time data, offering valuable insights into market movements. Mike Simonson underscores the significance of these signals in foreseeing shifts within the market. A key indicator is the inventory of unsold single-family homes, which has witnessed a seasonal uptick, albeit marginal. Nonetheless, this rise is offset by a notable reduction in available homes compared to the previous year, hinting at a potential waning demand.

Unveiling the Altos Rule: Mortgage Rates and Inventory

Simonson introduces the "Altos rule of thumb," a concept that links mortgage rates to housing inventory levels. The principle posits that higher mortgage rates correspond to increased inventory, while lower rates lead to a decrease in inventory. This correlation is instrumental in predicting inventory trends. Despite witnessing inventory decline during H1 due to robust demand, the interplay of higher rates and diminished demand may yield divergent outcomes.

Exploring the Subtle Sales Slowdown

Transaction rate analysis, characterized by the total number of new contracts for homes, reveals a nuanced shift in the pace of sales. The ascent of mortgage rates beyond seven percent has led to an 11 percent drop in new pendings compared to the preceding year. While earlier in the year, the sales rhythm approached normalcy, the impact of higher rates has led to a discernible gap between the dark red line and the previous year's light red line.

Price Reductions as Precursors

Price reductions are pivotal indicators of market sentiment and dynamics. A rising percentage of homes (35.1 percent) experience price cuts, signaling a market that is marginally more susceptible. While not indicative of a market crash, this trend underscores the responsiveness of consumers to elevated mortgage rates.

Resilience in Home Prices

Amidst the evolving market dynamics, home prices have demonstrated resilience, displaying only minor fluctuations. The median price of single-family homes has maintained its stability. The median price of newly listed homes has experienced a marginal decrease, mirroring seasonal norms. Nonetheless, careful monitoring is essential to assess whether this trend intensifies, potentially echoing last year's more pronounced decline.

Examining Potential Price Adjustments

Even as home prices hold steady, a noteworthy pattern emerges in the price of newly pending sales. The weekly price of new sales entering contracts has slightly decreased, highlighting buyers' sensitivity to higher mortgage rates. While not indicative of a significant plunge, this shift could impact annual home price appreciation.

Navigating the Path Forward

As August's midpoint approaches and mortgage rates remain elevated, the housing market experiences a gradual and intricate slowdown. Altos Research's data offers valuable insights into these changes, enabling industry professionals and consumers to make informed decisions. While home prices demonstrate resilience, the equilibrium between demand and affordability demands keen observation. As the fall season approaches, keeping a vigilant eye on mortgage rates' influence on housing inventory and prices will be instrumental in navigating this evolving landscape.

Disclaimer: The perspectives and insights shared in this blog post are based on data and analyses from Altos Research as of mid-August 2023. Market conditions are subject to change, and readers are advised to stay updated with the latest data and industry trends.*