Are Falling Home Prices Supply-Related, Seasonal, or Something Else?

For the past few months, explosive demand and low supply have made the U.S. a great place for homeowners looking to sell. However, the winds have begun to change. As the economy corrects, many of the idiosyncracies caused by the pandemic are starting to look more like they’ll return to normal. 

Housing supply across the country has begun to recover after reaching startlingly low levels in the first quarter of the year. 

At first glance, one might conclude the increased supply is having a visible effect on the sale-to-list price ratio.  But it’s also worth considering the seasonal component of this decline. Excluding 2020, it’s typical for this measure to rise early in the year and reverse at about the year’s midpoint. This has again been the case in 2021. So is this year just following a typical expected pattern or is demand being maintained and the supply increase is driving prices downward. It’s worth noting that either way, this ratio remains absurdly high with more than half of all homes selling above list price. 

We can usually get an idea of demand through consumers’ search trends. Searches are mixed across the housing market but it’s clear that interest is still there. Keep in mind that these search trends have had seasonality removed.

That being said, buyers are not very optimistic. According to the University of Michigan consumer survey, buying conditions for homes are at their worst since the 1980s.  Its possible demand itself is low while interest (represented by search trends) is high. In other words, consumers are looking, but not buying. 

Another area worth watching is the pace of single-family housing construction. New home sales at all stages of construction have fallen off year-over-year. However, there is some sign that completed homes are beginning to pick up. In any case, this lends credence to the idea that consumers, even if interested in buying a home, are hesitating. This measure is also seasonally adjusted.

Sign Up for a Free Trial