Market Update November 4th, 2024

Over the past eight months, the real estate market has increasingly turned against sellers, who might instinctively attribute this shift to weakened buyer demand and persistently high interest rates. However, the primary cause of this change appears to be an increasing supply of available properties. As the months have passed, the inventory of homes for sale has steadily grown, putting more options in front of buyers and diminishing the likelihood that any particular listing will stand out. This intensifying competition among sellers is leading to frequent and often substantial cuts in list prices as they attempt to draw buyer interest. Compounding this trend is the presence of newly built homes, which represent a significant share of the market but only minimally contribute to the count of active listings.

The rise in active listings has been significant, with properties without a contract climbing from 15,574 in February to 21,368 currently—a 37% increase. This influx of listings offers buyers an abundance of choices, making it harder for sellers to command attention in a crowded marketplace. As a result, sellers must actively compete with one another, often lowering prices to remain competitive. Additionally, these sellers face competition from new builds, which are drawing an unusually high share of contracts signed in 2024. The surge in available new construction only adds pressure on sellers of existing homes, further intensifying the challenge of attracting buyers.

One way to gauge the cooling market conditions is through the contract ratio, which reflects the market's activity level. In February, the contract ratio for all areas and property types was 47.7, signaling a moderately active market; by contrast, this figure has now dropped to 32.46, verging on a cold market. The last time we saw this level in November was a few years ago when iBuyers were liquidating their excess inventory at discounted prices, with over 20,000 active listings at that time. Unlike then, today's situation isn't driven by an unusual surge in inventory but rather a simple imbalance between too many sellers and too few buyers. This disparity is causing the number of unsold homes to build up week by week, placing further pressure on prices.

Currently, the Cromford® Market Index is hovering just above the buyer's market threshold, indicating that unless market conditions shift, a period of stronger downward pressure on prices may be on the horizon. As homes linger longer on the market, more sellers may lose patience and resort to lowering their prices in response. However, a possible seasonal reduction in active listings could mitigate this trend somewhat, as sellers typically remove homes from the market during the holiday season. Although an oversupply at the end of the year—like in 2005—can sometimes signal trouble ahead, that scenario appears less likely in 2024. Still, a close watch on both active listings and the contract ratio over the next two months will provide key insights into the market's direction.

"The best way to predict your future is to create it."
– Abraham Lincoln

Have a great week everyone!