Inventory is climbing and home price growth is slowing. But demand is also falling

Annual home price gains continued to cool in April, marking the second consecutive month of pullbacks. Annual price gains of 6.1% in February slowed to revised growth of 5.7% in March and eased to to 5.1% in April, according to an ICE Mortgage Technology report released Monday.

That’s the good news.

If adjusted monthly gains were to continue at the current pace of 0.28% per month, the annual growth rate metric would fall below 4.25% in June, with home prices seeing year-over-year gains of less than 4% by July, Andy Walden, ICE Mortgage Technology’s vice president of enterprise research strategy, said in a statement.

Housing market supply and demand remain constrained, and interest rate movements in either direction can change that dynamic, Walden said.

“While we’ve made meaningful strides in terms of inventory improvement, there are still roughly 36% fewer listings than normal for this time of year,” Walden said. “Likewise, in the face of higher rates as well as prices, purchase mortgage demand remains about 45% off comparable periods in 2018 and 2019. As we’ve seen in recent years, any substantial move in rates can result in those supply/demand dynamics shifting quickly, either bolstering or softening home prices.”

The ICE report broadly confirms recent Altos Research data on inventory trends. For example, the number of homes for sale nationwide was up 30% in April to its highest seasonally adjusted level since mid-2020.

Altos Research President Mike Simonsen reported last week that every state in the country now has more unsold inventory than a year ago. Some states like New York have only a fraction more unsold homes now than last year, while other states like Florida have 65% more homes unsold.

ICE researchers found that 14 of the largest markets have returned to pre-pandemic levels of inventory. Of these 14 markets, 13 are in Florida or Texas, while many Northeast and Midwest markets are seeing inventory deficits worsen, placing upward pressure on home prices.

Lakeland, Florida, now has the largest surplus, with 43% more homes for sale in April than it averaged from 2017 to 2019, according to ICE. Austin was next at 29% and San Antonio came in third at 27%.

By contrast, the Connecticut metros of Hartford, Bridgeport and New Haven continue to have the deepest inventory deficits (more than 75%), with little movement year over year as inventory levels remain a major challenge across the Northeast.

“Inventory seems to be the primary differentiator when it comes to the bifurcation we’re seeing in housing market temperatures across the country,“ Walden added. “Generally speaking, the Northeast and Midwest still face deep deficits in available homes for sale, helping prices continue to run hot.

“On the other end of the spectrum, prices are softening in Florida and Texas as for-sale inventories rise in both states. Then you’ve got California, where affordability and inventory are in a steel cage match to determine dominance. In April, each of the state’s top 10 markets either registered below-average growth or clocked adjusted price declines.”

Other data from the Mortgage Monitor report:

• The national delinquency rate fell to 3.09% in April — its second-lowest level on record behind only the record-low of 2.92% in March — and marked a 22 basis-point improvement from the same time last year.
  
• Serious delinquencies (loans at least 90 days past due but not in active foreclosure) sank to their lowest level since August 2005, down 17,000 (-4%) for the month and 84,000 lower (-16.8%) on a year-over-year basis.
  
• In looking at the broader origination market, some $346 billion (971,000) in first-lien mortgages were originated in first-quarter 2024, down 1.3% from the $350 billion in Q4 2023 and flat from Q1 2023.
  
• While refinances rose 34% from the 23-year low point in Q4 2023, purchase origination volumes fell 7% in what is typically the weakest quarter for purchases (Q4 to Q1 volumes dropped by an average of 15% over the previous two decades).