Prices Continue to Soften Despite Lower Supply and Strong Buyer Demand
A surprising drop in newly listed homes combined with strong homebuyer demand could suggest that home prices will spike upward this fall as they did much of last year. Not so. We actually expect prices to continue to soften in the next few months as investors and all-cash buyers continue to retreat from the market.
Home prices decreased 1.4 percent in August from July, and were up just 5.1 percent from last year. The number of homes sold was down 5.1 percent from last month. Homes stayed on the market an average of three days longer in August than in July, and just 18.2 percent of homes sold above list price, the lowest rate in seven months.
What’s most interesting about August is the 9.3 percent drop in new listings. On average, new listings have dropped 3.2 percent between July and August over the past five years. The other wildcard is that buyers still want in. The number of Redfin customers touring homes was up 37.6 percent year over year in August, an uptick from the 34 percent increase in July.
Our take is that the seemingly incongruous August numbers reflect the mindsets of buyers and sellers. Buyers want to buy, but they’re patient, and more careful not to overpay. At the same time, sellers are adjusting to having less power, which seems to have put a damper on some listing their homes.
“The question homeowners want to know is whether to list now in the fall or wait until next spring during the typical selling season,” said Sondra Savino, a Redfin agent in Chicago. “My best advice to homeowners is to list when they are ready to sell. If a homeowner is ready to sell now, there are advantages to listing a home in the fall. There are usually fewer homes to choose from, and people looking during this time are usually serious buyers, not just casual browsers.”
To get a handle on how competitive the market would be for sellers in the fall, we wanted to know how quickly August inventory would shrink at the current pace of sales. To do this, we calculated months of supply in the market based on the ratio of the number of homes for sale to the average number of homes sold between June and August.
Across all metro areas, there was an average of five months of supply. Over the past five years, the average supply after the summer selling season has been seven months in metro areas served by Redfin. Traditionally, less than six months of supply has been associated with a seller’s market and over that point is a buyer’s market.
These national numbers belie the huge variation in markets across metro areas. Below we show months of supply for major metro areas if homes continue to sell at the same rate as they did this summer.
Not surprisingly, West Coast markets like San Francisco and San Jose have the lowest supply, at just 1.2 and 1.3 months, respectively. More surprisingly, the Texas metro areas of Houston, Austin and Dallas are also well under the five-month national average. In fact only four metros, Miami, Atlanta, Long Island, and Hudson Valley, New York, had months of supply indicative of a buyer’s market.
Strong demand and short supply lay the groundwork for an unusual twist to sales activity in September and October. As the housing market continues to normalize, we anticipate a fall selling season marked by both slower price growth and more transactions than last year in many metro areas across the country.
