Something Weird Is Happening in the Housing Market…

The current housing market is experiencing a return to normalcy after a severe seller's market, with key indicators like inventory, days on market, sales-to-list price ratios, and foreclosures not signaling an imminent crash, but rather a price correction and market adjustment.

• Housing market indicators suggest a return to normalcy and a price correction, not a crash.

• Homeowner equity levels are a key safeguard against widespread foreclosures.

• Anticipated interest rate cuts may improve affordability and stimulate market activity in the near future.

The housing market is currently undergoing a significant adjustment, moving away from the extreme seller's market seen in recent years towards more normal, pre-2019 conditions. While interest rates are higher and affordability is at a multi-decade low, indicators like national housing supply, days on market, and the small differential between list and sold prices suggest a market correction rather than a crash. The primary risk of a crash hinges on a significant triggering factor like massive job loss, as most homeowners possess substantial equity.

Current Housing Inventory

• 00:00:54 The housing market operates on supply and demand, with current conditions showing more supply than demand, creating a buyer's market. Nationally, the housing supply is 4.6 months, which is lower than the 5.5 months in 2019, a period considered stable. However, builder supply currently stands at 9.5 months, indicating an oversupply that is leading to concessions and rate buy-downs, which impacts builder profits but not necessarily the broader single-family home market.

Days on Market & Pricing

• 00:06:59 The average number of days homes stay on the market nationally is 47, an increase from 34 days in 2019, but specific markets like Phoenix show fewer days on market now than in 2019. This increase reflects sellers, many of whom are not forced to sell, letting their homes sit longer rather than immediately lowering prices. The list price to sold price ratio is 99%, meaning homes are selling for approximately 1% below their list price, which indicates a price correction and adjustment to current market realities, not a crash.

Foreclosure & Equity

• 00:16:15 Foreclosures, while increasing, remain 25% lower than in 2019 and are nowhere near the levels seen during the 2008 crash. A significant difference from 2008 is that most homeowners today have substantial equity in their homes, ranging from hundreds of thousands of dollars. This equity provides a strong buffer against foreclosures, as homeowners are less likely to walk away from a property with significant positive equity, unlike the negative equity situations prevalent in 2008.

Affordability & Future Outlook

• 00:25:33 Housing affordability is at a multi-decade low, making renting a more financially sensible option in many markets due to the significant difference between mortgage payments and rent. Anticipated Fed rate cuts, potentially reaching the mid-fives by early next year, could alleviate affordability issues and stimulate market activity, including refinances and inventory movement. The historical lag of approximately a year for rate cuts to impact the housing market, as observed in the UK, suggests a window for buyers to capitalize on builder discounts and refinancing opportunities.