There’s a good chance you’re wondering if the market has changed in the last couple months. Maybe you’re feeling it yourself, or maybe you’re hearing it from others or in the media. In some ways, there has been a shift. In other ways, the perceived change arises from comparisons to 2020. As we know, the 2020 market was unique and anything but normal. For example, pending sales rose 21.0 percent last August and fell 10.0 percent this August. The market cannot sustain a 21.0 percent growth rate year in and year out given the inventory constraints. But pending sales this August were still up nearly 9.0 percent from August 2019 (a much more “normal” market and thus apples-to-apples comparison). A few other factors include the ongoing supply shortage, changing preferences and needs, buyer fatigue/burnout and a “wait and see” approach, a reluctance to pay top dollar and affordability concerns.
Prices have risen about 12.0 percent over the last 12 months, but household budgets can only stretch so far. It’s important to note that—without notable inventory growth—home prices are unlikely to soften given that imbalance between supply and demand. To be clear, with 1.4 months of supply, we’re still firmly in a seller’s market. If the market were a vehicle on the freeway, it would have decelerated from 150 mph to 120 mph. Still a high rate of speed, but down slightly from the even faster pace of 2020.
One way to measure and capture market shifts is to look at the number or prevalence of price reductions. The chart below tracks price reductions on a month-to-month basis going back to January 2020. You may note the three consecutive months of rising price reductions beginning in June. You may also note that 17.2 percent is still a low figure compared to other months. Whether this reflects a temporary or more lasting shift remains unknown. Interest rates remain extremely attractive, which has partly offset rising prices. In other words, monthly payments haven’t risen the way home prices have due to mortgage rates.
This is just another tool in our toolbox to assess market health and performance. Be sure to check out the rest of our reports. And don’t forget to try out our interactive Sortable Stats tool, which allows you to sort all the various neighborhoods and cities based on sales, prices, market times and absorption rates.