Final Look at Local Housing Markets in March

Housing Inventory Milestones to Watch

This is the final look at local markets in March. I’m tracking about 35 local housing markets in the US. Some of the 35 markets are states, and some are metropolitan areas. I update these tables throughout each month as additional data is released.

This final update for March adds Alabama, Columbus, Des Moines, Illinois, Indiana, Miami and New York.

My view is that if the housing market starts slowing, it will show up in inventory first. And we are seeing a change in inventory right now! (Likely due to higher mortgage rates)

Inventory is the supply side. Redfin this morning reported that they are seeing a decline in demand: Redfin’s Homebuyer Demand Index fell for the first time since June, and the share of home sellers dropping their asking price was the highest in five months.

Homebuyer demand softened further over the last several weeks as a typical slump in buying and selling over Easter and Passover weekend amplified a recent slowdown triggered by surging mortgage rates and housing costs.

Roughly 1 in 8 sellers cut their list prices during the four weeks ending April 17—the highest share in five months—and asking prices declined slightly from the previous four-week period. Redfin’s Homebuyer Demand Index—a measure of requests for home tours and other home-buying services from Redfin agents—fell 4% year over year during the holiday week in its first drop since June. Mortgage applications and online searches for “homes for sale” also slumped. …

“The lull in homebuying and selling activity that we saw over Easter and Passover is likely to continue well past the holiday weekend,” said Redfin Chief Economist Daryl Fairweather. “The forces causing many homebuyers to pump the brakes are still in place—increasing mortgage rates and record-high home prices. We expect price increases to slow and buyers in bidding wars to face fewer competing offers, but substantial relief for homebuyers is unfortunately still well beyond the horizon since the housing market is still tilted further in sellers’ favor than at any time in history.”

emphasis added

The following data is important, especially active inventory. On a national basis, we saw record low inventory levels over the Winter. Last year, inventory didn’t bottom seasonally until early April. This year inventory bottomed in February (normal seasonal timing).

The next milestone will be when inventory is up year-over-year (YoY). My current guess is inventory will be up YoY near mid-year.

Housing Inventory Milestones to Watch

1. The seasonal bottom.

2. Inventory up year-over-year (currently down 9.5% according to NAR)

3. Inventory up compared to two years ago (currently down 36%)

4. Inventory back to median for last decade (currently down 43%)

So far #1 has happened, and #2 will probably happen mid-year 2022. The following graph (using NAR inventory data) shows the above changes since January 2020. Even when inventory is up YoY (that will happen soon), we will still be a long way from normal levels of inventory.

I will discuss house prices vs. inventory next week after the Case-Shiller house price index is released.

Active Inventory in March

Here is a summary of active listings for these housing markets in March. Note: Inventory usually increases seasonally in March, so the month-over-month (MoM) increase is not surprising.

Inventory was up 6.1% in March MoM from February, and down 20.7% YoY. Inventory in about a third of these markets was already up YoY.

I’m using active inventory. The NAR appears to include some pending sales in their inventory report, so the NAR reported inventory was down 9.5% YoY in March.

Seasonally inventory bottomed in February. Last month, these markets were down 27.1% YoY, so this is a significant change from February. In January, inventory in these markets was down 30.6%.

These are steps towards a more balanced market, but inventory levels are still very low.

This table doesn’t include California where inventory was up YoY.

Notes for all tables:

1. New additions to table in BOLD.

2. Northwest (Seattle), North Texas (Dallas) and Santa Clara (San Jose), Jacksonville, Source: Northeast Florida Association of REALTORS®

3. Totals do not include Atlanta or Denver (included in state totals).

   

New Listings in March

And here is a table for new listings in March. For these areas, new listings were down 0.9% YoY. We are not seeing a pickup in new listings. Note: Not all local markets report new listings.

Last month, new listings in these markets were down 0.8% YoY.

Closed Sales in March

And a table of March sales. Sales in these areas were down 5.4% YoY, Not Seasonally Adjusted (NSA). Sales were up YoY in about 30% of these markets. The NAR reported sales NSA in March (456,000) were 5.8% below sales in March 2021 (484,000).  So, this sample of local markets is similar to the NAR report.

The table doesn’t include California where sales were down 4.4% year-over-year.

Note that 30-year mortgage rates averaged 4.2% in March according to Freddie Mac. Now rates are around 5.25%.

I expect we will see further increases in inventory in April due to higher mortgage rates (more than the usual seasonal increase).