Inventories are piling up because prices are too high. But they’re coming down.
By Wolf Richter for WOLF STREET.
The housing market in Texas just hit another multi-year record of sorts: Active listings reached a new high in October in the data of Realtor.com going back to 2016. New listings are showing up at about the normal rate for this time of the year, but sales are lethargic despite dropping asking prices – prices clearly haven’t dropped enough – and so the inventory keeps piling up and going stale.
Active listings rose to 115,739 homes, up by 28% year-over-year, up by 42% from two years ago, and up by about 13% from 2018 and 2019 (data via Realtor.com).
Median Days on the Market drag out.
The median number of days a property sat on the market for sale before it either sold or was pulled off the market in seller-frustration rose to 61 days in October, the most for any October since 2019.
This metric is a result of:
- How aggressively sellers pulled listings off the market without sale;
- And how fast properties sold that did sell.
When sellers get more motivated, they leave the property on the market longer, rather than pulling it off after a few weeks if nothing happens. And they might try reducing the price until it sells. This causes the median number of days on the market to lengthen.
Inventories are piling up because prices are too high. But they’re coming down.
Just about anything can be sold if the price is low enough. But many sellers still want their aspirational prices, and so they pull their vacant home off the market, hoping that this too shall pass, and pay the substantial carrying costs of a vacant home, especially if leveraged, rather than list the home at a price that is low enough to sell.
Listing prices are prices that sellers imagine. They’re not transaction prices. Transaction prices are set by buyers. In the major metros in Texas, transaction prices have fallen to varying degrees. More in a moment.
The median listing price in Texas dropped to $370,700 in October, down by about 2% from a year ago and down by about 3% from two years ago. Compared to the seasonal peak in June 2022, the median listing price is down by 7.9% (data via Realtor.com):
Price reductions trim too-high listing price.
In October, there were 37,984 listings with price reductions in Texas, the third highest for any October in the data by Realtor.com going back to 2016. Only the Octobers in 2022 and 2018 were higher. Obviously, as we can see from the inventory pile-up, these price reductions are not doing the job.
Listing prices need to be attractive in the first place, and when they don’t catch, price reductions need to be bold and stand out in this field of competition, because there is a lot of competition now (data via Realtor.com).
Transaction prices (closed sales) for the major markets in Texas have declined, in some markets more than in others. The October prices will be released in a week. Here are the transaction prices through September, according to data from the “raw” Zillow Home Value Index (ZHVI), which we feature in our Most Splendid Housing Bubbles in America series.
Austin metro: -4.0 year-over-year, -20% from the June 2022 peak, and back to where it had been in May 2021.
Dallas-Fort Worth metro: -0.3% year-over-year, -4.4% from the peak in June 2022:
Houston metro: +0.4% year-over-year, -1.9% from the July 2022 peak
San Antonio metro: -2.7% year-over-year; -6.8% from the July 2022 peak:
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Excellent. It’s lovely to see that Texas and Florida are moving the needle in the right direction. Hopefully, by next year, this will accelerate, and the same thing will happen in SoCal. This is wishful thinking, but I’m crossing my fingers for now. I’m really hoping there’s not any recovery of demand when people all of a sudden hop on the rate cut is coming train like we experienced earlier this year.
Just a question, because I’m always confused by your comments. Are you hoping prices come down because you want to buy a house?
Sure, when the price comes back down to earth and you pay the steak price and get a steak. Where I am at, using analogy, right now at best you pay Wagyu price and get a frozen ground beef patty and that to me is unacceptable, I am ok waiting it out and enjoying the show with some level of indifference and disdain..if it doesn’t go down ever then so be it and deal with “missing out”
Been following Mitch Vexler’s advocating regarding the massive issues with property taxes and CADs. He started with TX but appears to be a nation wide issue.
This issue is amazing. When I moved to Texas and saw what my CAD was doing, I hired a protest company to protest my taxes, provided photos of the house, etc. This dropped my valuation way down compared to neighbors. Next year will be 4th year in a row of protesting and every year it goes down.
Their “market analysis” approach may hold up in court though as the burden of proof is extremely high.
I’ve mentioned this before….the new home builders near me (Lennar and others) have dropped the prices of their new builds 10% across the board. And they are STILL offering loan buydowns for two years @3.99%.
Doesn’t make me feel too good as I bought a new small home 16 months ago, but, then again, where I was living before I moved here is dropping in price too. I did sell that house at the top of the market at that time so I’m just giving a little of it back! LOL!!!
A house is a place to live as that’s been my game plan for the last 5 decades plus!
For the record, I am north of Houston, Texas about 50 miles or so (Conroe).
Only in Texas and Florida, one can only wish anywhere in Cali this is happening at all…
Btw, IMHO I still think there are wayyyy too many people who still think the return of low mortgage rates to 3% is a thing and that’s the only opportunity they will have ever to afford to buy, people need to wake the F up and disregard mortgage rates as the equalizer and continue, if not ramp up effort in boycotting these ridiculous prices and let price alone be the incentives to bring buyer’s demand back. I know as a whole, this sagging buyer’s demand is showing that but perhaps not all markets, I can’t tell you how many in my neck of the wood still glaze to the star hoping for the return of 3% rate so they can finally afford that tiny crappy condo for $1M, meanwhile not questioning even at 0%, that condo should never be worth $1M to begin with…
I view a house as an inverse annuity: instead of providing a fixed monthly income, it sets a fixed monthly housing cost.
“Compared to the seasonal peak in June 2022, the median listing price is down by 7.9%”.
Just another 30-35% to go. With the 200 year average correction being 4.6 years, the bottom should arrive at the end of 2027.
Then again, the past two corrections (89-96, 06-12) took 7 and 6 years, respectively.
So 2028 or even 2029 are still in play.
Just a wild food for thoughts….last time, home prices also didn’t rocket up 30-40% in matter of 2 years so perhaps the trajectory downward might be just as violent….wishful thinking again but this cycle is abnormal in many aspects..
This is what gets me. See the Austin chart it’s down 20% from the June 2022 peak but still almost 50% up from 2020. Inflation doesn’t justify that.
I’m moving and I’ve decided to rent. The rental market is almost equally weak; I was offered a 2bd2ba rental for $1600 with 6 weeks free for a 12-month contract. That’s not bad but I’d prefer to set the rent at $1500 instead of the silly incentive games. I’ll hold off another month if I can and there should be more weakness as long as the Fed holds steadfast on QT, methinks.
Depending on the outcome of tonight’s election we may see JPow cave in to loudmouths on TV yet again like in 2019 and screw this further.
Two quick observations in prices:
First, if you assume a home increases in value at roughly 3.5% per year, and start with a value in Texas of approximately $265k in 2017 (eyeball estimate from WS’s chart), the future value after seven years (2017 to 2024) would be approximately $337k. This compares to a current approximate value of roughly $370k (again, eyeball estimate) which indicates a price difference of $33k is still present or roughly 9% too high.
Second, assuming 20% down on a $370k home, a loan of roughly $300k would be required. At a 4% 30-yr interest rate (from 2020/2021), the monthly P&I payment would be $1,432. Let’s assume that after 4 years, our 2020/2021 buyer can afford $1,600 per month P&I (as they received some compensation raises). Using a 7% interest rate (today’s rate), the loan they can afford would be roughly $240k to maintain a P&I payment of $1,600 per month. Now, let’s add a higher down payment (as they invested their $70k wisely) of $80k and the total price of the home would be $320k. This compares to $370k current price which indicates the home is overpriced by $50k or roughly 13.5%.
This is very simple cowboy math/estimates but based on these two quick and dirty calculations, it would appear that the Texas homes are still overpriced by 10% to maybe 15%. At least Texas is heading in the right direction but still has a way to go.