Housing Demand Falls to (Near) Record Low as Inventory Rises. Now Comes “House Price Stabilization”: NAR

“The market is at an interesting point with increasing inventories and decreasing demand”:National Association of Realtors

By Wolf Richter for WOLF STREET.

Here in our little corner, we usually just glance at the National Association of Realtors’ “pending home sales” data. That’s a forward-looking indicator of “closed home sales” based on contract signings—on deals that haven’t closed yet and could still fall through. But today’s pending sales release was interesting for a few reasons, including NAR’s expectation that collapsing demand and rising inventory would cause home prices to “stabilize” in the second half of the year. So here we go.

The Pending Home Sales Index fell 2.1% from April and 6.8% from a year ago to 70.8 (seasonally adjusted annual rate), which headlines have called an “all-time low” or “record low” in data going back to 2001, and it’s pretty close. In the NAR data we have access to via YCharts, today’s number was still a bit above the April 2020 all-time low (index value of 70). But the idea is the same: Demand has collapsed, even as inventory has increased.

The index value was set at 100 for contract signings in 2001. The current value of 70.8 is therefore down 29% from the 2001 index average. Compared to Mays in more recent years:

• May 2022: -28%
• May 2021: -39%
• May 2020: -30%
• May 2019: -33%.

And this sustained drop in demand comes even as supply in May jumped to 3.7 months, the highest level since June 2020, and inventory for sale jumped 18.5% year over year, to reach 1.28 million housing units, according to the NAR last week:

So here's what the NAR said about this situation:

• “The market is at an interesting stage with inventory increasing and demand decreasing. »
• “Movements in supply and demand suggest a slowdown in house price appreciation in the months ahead.”
• “During the second half of 2024, we should expect a… stabilization of real estate prices. »

Oh, and let's pray that mortgage rates “go down”:

• “Inevitably, more inventory in a job-creating economy will lead to increased home purchases, especially when mortgage rates fall.”
• “In the second half of 2024, expect moderately lower mortgage rates…”

But maybe they won't drop much, or even enough – they've been around 7% for months:

• “NAR projects that mortgage rates will remain above 6% in 2024 and 2025, even with reductions in the federal funds rate by the Federal Reserve.”

What a desappointment ?

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