By Odeta Kushi
Key Points:
- Despite an increase in mortgage rates, leading indicators of sales point to a modest pickup in sales activity in November.
- Inventory turnover has steadily increased to reach 0.95 percent as of October 2024 —that’s 95 in every 10,000 existing homes for sale.
- The recent increase in inventory helps to coax some potential buyers off the sidelines because they have more options to choose from.
The seasonally adjusted annualized pace of existing-home sales in 2024 has remained below 4 million for five consecutive months, a statistical feat unmatched since the late 1990s. Put another way, the re-sale housing market hasn’t been this stagnant since Bill Clinton was president.
Existing-home sales have struggled under the weight of higher mortgage rates and corresponding affordability challenges, coupled with a limited supply of homes for sale. For most potential buyers during this period, even if you find a home for sale, chances are you can’t afford it. However, November data brings some cautiously optimistic news.
According to our Existing-Home Sales Outlook Report, existing-home sales are expected to increase 1.2 percent in November compared to one month ago. Other sources indicate a similarly positive trend. Average seasonally adjusted purchase mortgage applications, a leading indicator of future sales, increased nearly 3 percent compared with October. Pending home sales, another forward-looking indicator of sales based on contract signings, increased by 2 percent in the month of October. Because a home goes under contract a month or two before it is sold, pending home sales indicate a potential uptick in sales in November. These are positive signs during a month when mortgage rates moved higher. So, what could be driving the increase in activity?
“The journey back to a normal housing market should accelerate in 2025. You can’t buy what’s not for sale – but the shelves are starting to be restocked.”
More Inventory, More Sales
According to our analysis, the total inventory of existing homes for sale relative to the total number of households, or “inventory turnover,” has historically averaged about 2.2 percent – or 220 homes per 10,000 are on the market at any given time. In February 2022, existing-home inventory turnover hit a series low of 0.75 percent. Inventory turnover has steadily increased to 0.95 percent as of October 2024 -- that’s 95 of every 10,000 homes up for sale. New-home inventory has also increased during this time, bringing the total inventory for the housing market (new and existing combined) to 1.3 percent, which is still below the historical average of 2.5 percent but an improvement from earlier this year. From an affordability perspective, our First American Data & Analytics House Price Index is showing that nominal house price appreciation has slowed alongside higher inventory levels. While inventory is far from “normal,” the progress is welcome news for potential home buyers and existing homeowners alike.
Importantly, more supply gives potential buyers more choices. In the housing market, the seller and the buyer are, in many cases, the same – the existing homeowner. To buy a new home, you have to sell the home you already own, and then find a home to purchase. But, not just any home – one that you like better. The fewer homes there are for sale, the harder it becomes to find something better than what you already have.
Sellers face a prisoner’s dilemma, a situation in which individuals don’t cooperate with each other, even though it seems in their best interest to do so. If sellers all chose to sell, they would all benefit as buyers because they would increase the inventory of homes available and alleviate the supply shortage. However, the risk of selling when others don’t in a market with a shortage of inventory keeps many existing homeowners from selling altogether. The recent increase in inventory helps to coax some homeowners to sell because they have more options to choose from as a buyer.
Is the Good News Here to Stay?
The last two years have been very challenging years in the housing market. The good news is that recent data indicates that the worst might be behind us. Inventory of existing and new homes has been trending higher, the consensus industry expectation is that mortgage rates will drift modestly lower next year, and there remains significant pent-up demand for homes from first-time home buyers and repeat buyers alike. Consider that the pre-pandemic, five-year average pace of existing-home sales was 5.4 million (SAAR). If you calculate the average annual pace of sales from 2022 through 2024, we’re cumulatively approximately 3 million sales short of the pre-pandemic normal – that’s a lot of missing sellers and buyers that are waiting to jump into the market. While the mortgage rate lock-in effect will prevent a full recovery, the journey back to a normal housing market should accelerate in 2025. You can’t buy what’s not for sale – but the shelves are starting to be restocked.
November 2024 Existing-Home Sales Outlook Highlights
For the month of November, First American updated its Existing-Home Sales Outlook Report to show that:
- Existing-home sales for November are expected to increase 1.2 percent from October’s pace of sales, but decrease 1.6 percent compared with the predicted pace of sales a year ago.
- The largest contributors to the projected monthly increase in existing-home sales are an easing of the rate lock-in effect as measured by the lagged* spread between the prevailing market mortgage rate and the average rate for all outstanding mortgages (+0.6 percentage points), positive economic growth (+0.3 percentage points), and an easing of credit conditions (+0.2 percentage points).
*The spread is incorporated with a two-month lag in the Existing-Home Sales Outlook model.
Methodology
Our Existing-Home Sales Outlook Report ‘nowcasts’ existing-home sales, which include single-family homes, townhomes, condominiums, and co-ops on a seasonally adjusted annualized rate based on the historical relationship between existing-home sales, U.S. demographic trends, house-buying power, and the prevailing financial and economic conditions, as well as momentum, a weight assigned to past values. Please note that the Existing-Home Sales Outlook Report is based on assumptions about demographic, economic and financial conditions. Actual values may differ from those projected. Recent existing-home sales estimates are subject to revision to reflect the most up-to-date information available on the economy, housing market and financial conditions.
