Skipping past “the world’s oldest profession,” brokering real estate transactions also goes back centuries. In early 20th century America, agents were known as “curbstoners. These entrepreneurs would pack brokerage signs in front of homes, sans the owner’s permission, making it a free-for-all for any interested party. To combat the anarchy, organizations began to form, most notably the largest lobby in the United States today. In 1908, the National Association of Real Estate Exchanges was founded to bring agents and brokers together to exert influence upon matters affecting real estate interests. Five years later, the real estate industry adopted its first draft of the Code of Ethics. And in 1916, the association became the National Association of Real Estate Boards (NAREB). The term “realtor” was adopted to distinguish members of the national association, who lived by the Code of Ethics, from dishonest curbstoners. By 1919, strictures were established to dictate who could operate as a licensed real estate broker.
Modern-day realtors have enjoyed an unparalleled run of rising prices care of what history will judge as the most reckless Federal Reserve policy in the institution’s history. According to the Bureau of Labor Statistics, the producer price index (PPI) for residential real estate agents has recorded year-over-year (YoY) gains in an unbroken 147-month stretch from July 2012 to September 2024. Over that span, the average annual increase was 6.5% with the hottest stretch the 14.7% YoY rise in the 12 months ended September 2021. Through last month, the YoY advance was a much more modest 3.4% YoY (lime line).
Two high-frequency price gauges suggest tailwinds will stay at realtors’ backs. Thus far this month, Redfin’s weekly housing market data boast an acceleration to 5.5% YoY (orange line). The Mortgage Bankers’ Association’s weekly survey proxy bested this, picking up to an 8.3% YoY pace in October’s first three weeks (purple line). The caveat is that these friendly trends omit the current supply-demand backdrop in the existing and new home markets.
For pre-owned single-family homes, the sales-inventories spread, measured by the difference in YoY percent changes, has favored home price disinflation for more than two years. The current -24.5-point spread (fuchsia line) has widened due to the demand drag outweighing supply. From November 2023 to September 2024, existing single-family home inventory growth rose from unchanged to 22.2%. Over the same period, sales’ declines ebbed from -6.4% to -2.3%. Existing single-family median sales price pressures could continue to disinflate after having fallen from 2024’s high of 5.4% YoY in February to 2.9% YoY as of September (blue line).
The same is the case for the relative smaller existing condo & co-op market. Here the sales-inventories spread has fallen deeper into inversion. Starting in 2023’s second half, supply’s growth has swelled from -11.9% YoY in July 2023 to 29.6% YoY in September 2024. Demand had struggled to stabilize from -17.3% YoY in July 2023 to -4.8% YoY. It’s since relapsed through September to -14.0% YoY, compressing the sales-inventories spread to -43.6 points, which harkens back to the 2000s housing bust (teal line). The growing disparity flags median sales prices grinding out disinflation from November 2023’s 8.6% YoY local high to a scant 2.2% YoY advance through September (lilac line).
From builders’ perspective, it’s been a constant fight to secure pricing power. Since April 2023, new home prices have posted 14 YoY declines in 18 months (yellow line). While we’re accustomed to new home sales being more volatile vis-à-vis its existing home sales counterpart, the current sustained (lack of) performance has one recent rival – the lead-in to the Great Recession. Moreover, throughout 2024, annual growth in monthly new home inventories has exceeded that of new home sales (light blue line). While both are expanding – inventories by 8.1% YoY and sales by 6.3% YoY in September – the excess supply influence on home prices promises to flex more strength.
The discrepancy is even wider when isolating new home completions. In this subsector, the completed sales-inventories spread has exerted a downward force on prices over a much longer period (red line). The sharply negative readings reached in early 2023 from positive and even neutral in 2022 generate a cooling in home price pressures by the end of last year. But the negative trends since (read: lack of homebuilder pricing, increased need for incentives, etc.) show that the new home market is even more out of whack. To that end, completed sales were up 29.8% YoY in September versus a 48.0% YoY gain for completed inventories.
Curbstoners need not apply in today’s answer to the early 20th century’s answer to a housing “wild west.” But friendly price trends for realtors aren’t being mimicked for builders sporting bruises as spec inventories threaten to give builders a new roof over their heads until the next cycle.
Housing gurus at Zelman & Associates observed that Western markets are a particular sore spot. According to ZA data, net absorptions during the week ended October 20 dropped to the lowest level of the year and were running 10-15% below normal for this time of year in series’ history to 2000. As if corroboration was needed, the cancellation rate of 16% has also reached a 2024 peak. Why no, the October backup in mortgage rates and the reacceleration in MacroEdge-tracked layoffs are not proving nearly as comforting as September’s reprieve on both fronts.