Few would argue that the housing market has been anything but soft over the past few years. But what does ‘soft’ mean? You’d be hard pressed to make the case that home prices are sufficient evidence: prices have not dropped year-over-year at the national level, though they skirted 0% in the summer of 2023 and again in the latest readings.
Instead, it’s the combination of slower home price growth and few of them actually trading hands that really encapsulates the sluggishness that most housing participants, from agents to developers, are feeling. In other words, transaction volumes tell the story.
The chart below shows US housing (all home types) transaction volumes over the past 15 yearsa. Volumes surged during the pandemic, with both prices and sales soaring, but have been sluggish since mortgage rates rose in 2022.
Transaction Volumes
Part of the reason volumes have been so low is that there was a surge of activity during the pandemic. With record low mortgage rates, new-found work mobility, and the need for more domestic space, millions of people changed their living situation in 2020-22.
And anyone who had been contemplating buying over the ensuing years surely also jumped the gun, bringing forward their transaction. It’s hardly surprising that we’ve had a fallow period—a housing hangover—after the frenzy.
The good news is that 85% of the excess activity from 2020-22 has now been swallowed by the last few years of market quietude. If activity is now showing some green shoots—especially unusual given the time of year—then this could well be a sign that demand is returning to more typical levelsb.
Of course, some of the recent dearth of volumes reflects not just a housing hangover, but some fundamental changes in the feasibility of moving homes: existing owners are locked into low-rate mortgages, and extreme levels of unaffordability are hampering would-be buyers, especially first time buyers, from transacting.
An odd thing about housing—that sellers are reluctant to lower prices and sell at a loss (‘sticky prices’), and that the exhaust valve for overpriced markets is instead lower transactions—is well documentedc.
Still, the 4 Ds of housing (diapers, divorce, death, diplomas) operate with little heed for mortgage rates or inventory—and after a long fallow period—we think the future is now looking brighter for transaction volumes, even it will likely take several years for a complete normalization.
- Zillow data[↩]
- According to our DynamicTables, sales and pending sales are declining more slowly than is typical at this time of year. Mike Simonsen of Compass also posted this nice chart[↩]
- See Case & Shiller, “Is There a Bubble in the Housing Market?”[↩]