The Housing Market Is 'Out of Whack' – Here's How to Understand It

Understanding the Current State of the Housing Market

The housing market is currently facing challenges that affect both buyers and sellers. While it may appear difficult to navigate, economists are closely monitoring key data points that could signal a potential shift in market dynamics.

Key Data Points to Watch

Days on the Market

One significant indicator is the number of days homes remain on the market. In the past, homes were selling quickly, often before they could be accurately counted in monthly data. However, recent trends show that homes are now staying on the market longer than they did before the pandemic.

According to Realtor.com data, in July, the median number of days on the market was 58, the highest for any July since 2017. This trend could be a temporary blip, but it's being closely monitored by experts like Joel Berner, a senior economist at Realtor.com. If this trend continues, it could indicate a correction in the housing market, leading to lower prices as buyers become more cautious.

This situation can be beneficial for buyers looking for deals, especially in areas where homes are sitting longer. Approximately a quarter of the 100 largest metropolitan areas experienced their slowest July since at least 2016, including cities like Los Angeles, Dallas, Phoenix, San Francisco, and Seattle. However, for buyers to benefit, sellers must keep their homes on the market. Recent data shows an increase in delistings, with some homeowners choosing not to sell due to the current market conditions.

Construction Data

New home construction is a small part of the overall housing market, but changes in construction data have broader implications. Recent data indicates that single-family home builders have slowed down significantly. In June, the pace of new home construction was the slowest in about a year, according to Census data. Additionally, authorization to build new homes dropped to its lowest level since March 2023, signaling a potential slowdown in the future.

Orphe Divounguy, a senior economist at Zillow, notes that builders are typically good at forecasting future demand. He suggests that rising input costs and a falling price environment are making builders increasingly wary. This pullback in construction could mean fewer discounts on new homes, which might be a plus for investors but presents challenges for buyers seeking affordable options.

Employment and Inflation Data

Employment and inflation data play a crucial role in shaping the housing market. The latest jobs report, while perhaps not favorable for certain political figures, has had a positive impact on mortgage rates. The weaker-than-anticipated jobs report in July led to a drop in mortgage rates, as the 10-year Treasury yield decreased.

Mortgage rates are closely tied to economic indicators, so continued monitoring of employment and inflation data is essential. Signs of a strong economy or rising prices could lead to higher mortgage rates, while weak readings could drive them lower.

Recent data shows that mortgage applications increased slightly, but the movement has not yet unlocked pent-up demand. However, if mortgage rates continue to decline, there could be a significant increase in housing demand. Jessica Lautz, the National Association of Realtors’ deputy chief economist, notes that even small movements in rates could have a substantial impact on the market.

Conclusion

The housing market is complex and influenced by various factors. By keeping an eye on key data points such as days on the market, construction activity, and employment and inflation trends, both buyers and sellers can make informed decisions. As the market evolves, staying informed will be crucial for navigating the current landscape effectively.