Average Price Per Sq Ft Remains Very Strong

When buyers are actively looking for homes their main source of information about home prices are the list prices for homes they see listed for sale. All the other data is historic, based on what someone agreed to pay weeks or even months ago. Here is what they see when they look at the ARMLS active listings:

First of all, they notice that the average price per square foot is higher in week 34 of 2023 than in week 34 of all the years back to 2015. They can also see that every year has been higher than the one before for week 34. The weak pricing triggered in 2Q 2022 by a sudden jump in mortgage rates has had only a temporary effect and now looks to be of only minor lasting significance.

The current average $/SF for all active listings is $350.27. This an average across all areas within the ARMLS database and all dwelling types. Because this is a very large sample, the chart is very well-behaved and shows us that:

1. The long-term trend has been higher for the last 8 years, with 2023 some 91% higher than 2015.
2. The summer is is a seasonally weak period, each year showing a decline from May to August, except for 2020 which was bouncing back from the severe COVID scare that occurred in March and April that year. The weakness in 3Q 2023 is similar to 3Q 2015 through 2018, relatively normal and uneventful years.
3. Today we see active list pricing 8.7%.higher than we did this time last year. This is a larger increase than the 6.0% we measured at the same time last year.
4. There was an unusually large and rapid fall between May and August last year on top of the seasonal weakness. This was heavily influenced by the pricing actions of the iBuyers who realized too late that they had continued buying even while the market was cooling, resulting in them having far too much inventory by June 2022. They had a fire-sale of this inventory in the second half of 2022 in order to rid themselves of that exposure.

One key problem is that the reality represented above is completely unlike the false narratives peddled by several sensationalist and misguided pundits on YouTube and other social networks and even those more sober and serious analysts that were working for Goldman Sachs in January. If buyers have been reading or watching this stuff, they may enter the market with preconceived notions that are very wide of the mark..

Buyers expecting lower prices are going to be sorely disappointed, especially when the real prices are coupled with the latest 30-year mortgage rates around 7.4%. This is another reason why demand is so persistently weak this year. Simplistic observers believe weak demand translates to weaker prices. Nope. It translates to weak sales. But for prices, supply is just as important and remains drastically below normal, even though it has risen slightly over the past few weeks. Rising slightly will make little difference. We would need supply to almost double for the market to achieve balanc