A few months ago, the US housing market failed Econ 101. Table 1 below shows the 10 hottest US metropolitan areas in February 2022, based on year-on-year growth. the other from the median listing price according to the residential real estate listing website, Realtor.com. The table also shows the year-over-year percentage change in new listings for each market.
Table 1: 10 fastest growing housing markets among the top 250 metropolitan areas, February 2022
|Subway station||Median listing price (Y/Y)||Number of new listings (Y/Y)|
|Naples-Immokalee-Marco Island, Florida||53.0%||-16.7%|
|Myrtle Beach-Conway-North Myrtle Beach, SC-NC||50.8%||-18.2%|
|Santa Fe, New Mexico||48.9%||-4.7%|
|Cape Coral-Fort Myers, Florida||45.0%||-0.8%|
|Punta Gorda, Florida||43.6%||-7.7%|
|Panama City, Florida||39.7%||17.9%|
|Las Vegas-Henderson-Paradise, NV||39.6%||-6.2%|
Even though median seller ratings in each of these housing markets increased by 40% or more over the previous year, only one market, Panama City, Florida, saw a year-over-year increase. another of the number of homes newly listed for sale.
The result was equally disconcerting on the other side of the distribution where house price growth was weakest; Although home values fell by at least 10% in each of the 10 coldest markets, the number of homes added to inventory for sale increased in eight of them.
These results defy economic logic; a large price increase is supposed to attract more sellers to a market, not fewer. When economists observe this trend, they usually attribute it to a decline in supply that is unrelated to price. For example, if a natural disaster destroyed thousands of homes in a real estate market, prices would rise due to the loss of inventory. But this explanation cannot corroborate the data in Table 1; no calamity decimated US housing markets in February.
A different explanation makes more sense: growth in stocks for sale slowed in almost all hottest markets a few months ago due to speculation. Despite unprecedented real estate price appreciation, homeowners in the hottest metro areas bet that their property values would continue to grow at a breakneck pace, and these gamblers didn’t want to risk missing another payday. more important in the near future.
This “near future” may now be a thing of the past; the latest data indicates that homeowner speculation in the housing market has come to an end.
This shift is evident in Table 2, which lists the 10 hottest housing markets in June, the most recent month of data available on Realtor.com. Contrary to findings five months ago, eight of these housing markets reported a year-over-year increase in new listings, meaning supply response normally follows a sharp rise prices. Bettors in the housing market seem content with their winnings, and now they’re cashing in their chips.
Table 2: 10 hottest housing markets among the top 250 metropolitan areas, June 2022
|Subway station||Median listing price (Y/Y)||Number of new listings (Y/Y)|
|Panama City, Florida||42.9%||65.6%|
|Cedar Rapids, Iowa||40.9%||6.8%|
|Waterloo – Cedar Falls, Iowa||40.7%||-2.9%|
|Miami-Fort Lauderdale-West Palm Beach, Florida||40.1%||4.1%|
|Fayetteville, North Carolina||37.7%||9.0%|
|Killeen Temple, TX||36.1%||31.2%|
|North Port-Sarasota-Bradenton, Florida||36.0%||21.2%|
|Punta Gorda, Florida||35.3%||7.5%|
The end of seller speculation in the housing market is long overdue and welcome news for buyers. If this trend continues, it will mean that more existing homes will soon be added to housing markets that have been starved of inventory for the past two years. This rise in inventory will shift bargaining power in these markets toward buyers, and home price growth will slow.
Early signs of thriving competition for buyers are already evident in data from Reator.com. Nationally, the number of listings with a price drop jumped 74% month-over-month in May and 51% month-over-month in June, by far the most strong increases never recorded.
But some analysts may miss these signals. For example, in the face of rising mortgage rates and reduced affordability, forecasters at Realtor.com recently revised their forecast for the annual change in existing home sales in 2022 from an increase of 6, 6% to a decline of 6.7%. But contrary to this new projection, home sales won’t falter if sellers stop speculating, adding more inventory to the market and settling for lower prices.
The forecast is uncertain as economic fundamentals have been absent from the housing market for some time. Figure 1 below illustrates the correlation between the year-over-year change in the median listing price and the year-over-year change in the number of new listings for the nation’s top 250 real estate markets. .
This analysis is limited to the top 250 marketplaces, as smaller marketplaces typically have fewer than 200 active listings per month, making average values more sensitive to a handful of random and unusual events. (Charts for thresholds between the top 100 and top 400 housing markets follow the same pattern.)
Figure 1: Correlation Between Median Listing Price (Y/Y) and Number of New Listings (Y/Y), Top 250 Metropolitan Areas
As mentioned earlier, conventional economic reasoning predicts that housing markets with faster house price growth will attract more listings; in other words, the correlation between the variations of these two series should be positive. But Figure 1 shows that data from the last five years generally contradicts this expectation. Since 2017, the start of Realtor.com’s series, this correlation has been negative 80% of the time. Steady house price growth has not encouraged more listings in the hottest markets.
Put into context, this story makes sense. In the early years of the series, many residences were worth even less than they were at the height of the housing bubble in 2006. This was especially true in low- and moderate-income ZIP codes. Even though homeowners had benefited for several years from rapid house price appreciation during the recovery, many resisted selling their properties at a loss.
The end of the series was punctuated by unprecedented house price growth following the COVID-19 recession. Owners in the hottest markets did not sell because they were anticipating or hoping for even bigger returns.
None of these conditions remain true today. For the first time in a generation, almost all long-term homeowners have substantial equity and are not expecting outsized house price increases. In other words, the housing market is returning to normal and the latest results reflect this new reality.
For the first time, the correlation between house price growth and the change in new listings has been positive, as expected, for three consecutive months. And last month, that positive correlation was three times stronger than any previous month in the series. Conventional economic wisdom predicts this outcome, but home sales patterns that have been adapted to abnormal market behavior over the past decade may not explain a return to normal.
Kwame Donaldson is an economist whose research focuses on residential and commercial real estate markets, demographic trends and GIS analysis. Over the past decade, he has held senior positions at the US Census Bureau, Moody’s Analytics and Zillow.
This column does not necessarily reflect the opinion of the editorial staff of HousingWire and its owners.
To contact the author of this story:
Kwame Donaldson at [email protected]
To contact the editor responsible for this story:
Sarah Wheeler at [email protected]