Realtors Confidence Index in Charts

Every month, the National Association of Realtors surveys its members on their outlook for transaction activity, competitive intensity, and buyer trends. Let’s take a quick spin through the October 2023 survey results.

A frigid outlook?

Only 7% of respondents said that they expect an increase in buyer or seller traffic over the next three months. While that sounds terrible, it is a bit better than the same time last year.

There is also clear seasonality to the survey results. The question NAR asks is “Do you expect to see a YoY increase in buyer activity over the next 3 months?” However, I’m pretty certain that the question Realtors are actually answering is “Do you expect to see a MoM increase in buyer activity over the next 3 months?”

If I were a Realtor, I’d be a lot more bullish right now.

Inventory levels have continued to rise (not normal this time of year) and mortgage rates have recently dropped from above 8% to below 7.4%. The Fed has almost certainly stopped raising short-term interest rates, and may start cutting rates as early as May 2024.

I wouldn’t be surprised if the existing home sales for October 2023 (3.79 million units on a seasonally-adjusted, annualized basis) proves to be the bottom for this 20-month downturn. Since January 2022 (when existing home sales were 6.34 million SAAR), existing home sales have plunged 40%!

The NAR itself forecasts 15% recovery in existing home sales in 2024, driven in large part by their assumption that 30-year mortgage rates will drop below 7% by the 2024 spring selling season.

Competition levels drop, but still elevated

In October 2023, homes that sold saw an average of 2.6 offers. A year ago, that figure was 2.4x As a reminder, back in March/April of of both 2021 and 2022, the typical home sold was receiving 5 offers!

As the number of offers per sale has declined, so has the prevalence of bidding wars that push prices higher. That said, even in October 2023, 28% of homes sold above their list price.

Moreover, in this environment of limited inventory, homes that are priced reasonably are still disappearing quickly. In October 2023, 66% of the homes that sold had been listed less than a month. It is still very much a seller’s market.

CUBs Win! (Cashed-up Boomers)

With mortgage rates so high, and home prices continuing to rise, who’s still buying? First, it’s people that have to buy (life events like marriage, kids, divorce, job changes etc.). Second, it’s people that have enough cash/home equity to avoid a mortgage altogether. In October 2023, 29% of transactions were all-cash sales, tied with January 2023 for the highest level in recent years.

But the first-timers are still there

It would be natural to assume that as the % of all-cash buyers rise, the % of first-time buyers must be getting squeezed out. After all, they’re the most price (and interest rate) sensitive. In fact, first-time buyers are still close to one-third of the market, every single month. And when you look at a much longer-term graph, their resilience is very clear. When you gotta move, you gotta move.

Picking bottoms is a smelly business

That’s a well-known stock market joke. But, in fact, trying to identify bottoms is one of the easiest ways to make significant money investing. As I mentioned above, I think we’re at (or very close to) the bottom for existing home sales.

Real estate professionals should be prepping buyers now so that they’re ready to act when conditions improve. And homeowners have seen a huge increase in home equity over the last few years. What’s the mortgage rate at which they go from feeling ‘locked-in’ to ‘ready to roll?’ Do you know? Do they know?