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Key Stats To Watch In A Changing Real Estate Market

Keep an eye on listing price reductions to predict prices

Mike Simonsen
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Mike Simonsen
Key stats

The world’s financial markets have been in turmoil. Stock markets are way down from their peak; interest rates are rising. The big question on many people’s minds is: will home prices fall? What do we know about the direction of the market? What can the data show us?

Here are the key stats to watch:


1. Price Reductions

Price Reductions graph

An important gauge for the direction of the market is the percentage of homes on the market with price reductions. This stat is now climbing more rapidly than it has any time since we’ve been tracking it.

This spring, only 20% of homes on the market had price reductions. For perspective, we normally see about 35% of the homes that get listed take a price cut.

When the market is hot, fewer homes take a cut. You know, “I overpriced my home and I got my offers, so I don’t have to take a price cut.” In 2020, we rolled into the pandemic, and people started buying everything in sight. And so, few price reductions had to happen.

Then last year, the market accelerated into a frenzy, and there were fewer price reductions all the way into May … and even with seasonal increases, we have still been well below the 35% “normal” rate.

Now, we’re shifting from this ultra-fast market where nobody had to do a price cut, to one where if you’re overpriced, you’re going to sit on the market, and you’re going to have to cut your price.

This means sellers are going to see the price reductions number rise above 35% this month. Even though we’re back into normal range, to uninformed sellers, that feels really slow!

If price reductions climb over 40%, that’s going to be a signal for little to no home price appreciation in 2023. Listing price reductions now mean lower prices on transactions that have yet to happen. Keep an eye on this one.

2. Immediate Sales

Immediate Sales graph

On the demand side, here at Altos Research we also track a stat we call “immediate sales,” which has been a defining characteristic of the pandemic boom of the last two years. These are homes that get listed and take offers and go into contract within hours, or just a couple of days.

We still have immediate sales happening at a surprisingly high rate, but it’s decreasing. We currently have 18% of new listings going into contract immediately. Earlier in the year it was more like 33%, but that’s been falling very steadily every week since April.

In late June, we had 86,000 or 87,000 homes that were newly listed that stayed on the market and didn’t sell immediately. This is the highest level we’ve seen since last year.

That being said, immediate sales have held up better than expected. The quality homes that are priced well are still selling quickly. I expected these immediate sales to evaporate much more quickly. I think this is evidence of a lot of pent-up demand: buyers who’ve wanted to buy for the last couple years and maybe being out bid in the ferocious competition but are now finally getting their opportunity to buy.

3. Re-lists

Re-ists graph

Here’s another signal to watch as a leading indicator for the future: the percent of homes that are re-listed. These homes were on the market and with no offers the listing expired, or maybe they went into contract and the contract fell through, so now they’re getting re-listed.

My expectation is that as buyer demand weakens, and as affordable credit availability weakens, you’ll have more transactions fail, and we’re going to see re-lists climbing. At only 1.6% of the market, re-lists are still relatively low, even though they’re higher than any recent July. If re-lists climb substantially, that’s also a bearish signal for future transaction prices.

4. Market Action Index

Market Action Index graph

The Market Action Index (MAI) is Altos’ proprietary tool to answer at a glance: “How’s the market?” It’s supply versus demand. And it works like a speedometer. When the Market Action Index is higher, that means supply is tighter and demand is high; as supply increases, or as demand starts to back off, that speedometer starts to cool down. Right now, the MAI is starting to tick down every month as inventory climbs, and as we see price reductions or re-lists growing.

Here’s what the Market Action Index looks like over time. Each week is dropping very rapidly, from record high levels, although still because inventory remains well below normal, the market is still in sellers’ market conditions. For the current levels of inventory, we have sufficiently strong demand: homes are selling. Prices are holding up. And yet, the market is cooling, and the Market Action Index is dropping very quickly. The MAI hasn’t seen “buyer’s market” conditions in many years. But we could see those conditions soon.

If you’d like to keep an eye on these signals every week, sign up for a free report at altosresearch.com. n

This article was originally published in the NMP Magazine September 2022 issue.
Mike Simonsen
Mike Simonsen

Mike Simonsen is the founder and CEO of real estate analytics firm Altos Research, which has provided national and local real estate data to financial institutions, real estate professionals, and investors across the country for more than 15 years.

Published on
Aug 31, 2022
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