The persistence of the lock-in effect: Eased but not vanished

Last week, ResiClub PRO members (paid tier) got these 3 additional research articles:

Deciphering housing inventory trends in +800 metros and +3,000 counties

The commercial real estate correction, as told by 3 charts

5 housing markets where inventory is up the most—and 5 where it's down the most

Like clockwork every year, the number of new listings hitting the national housing market rises consistently every month from January to June.

It's real estate agent’s money season.

It's when buyers have the widest array of fresh selection.

The 2024 result? Although this year's seasonal uptick surpasses last year's, it still falls considerably below pre-pandemic norms. The resale/existing housing market remains constrained.

Indeed, in April 2024, there were 432,028 U.S. new listings, marking a +12% increase compared to April 2023, during which there were 385,052 U.S. new listings. However, this figure remains -22% below the levels observed in April 2019, when there were 552,268 U.S. new listings.

Why are new listings up year-over-year?

The lock-in effect is easing a bit as the initial mortgage rate shock recedes in the rearview mirror, and as some sellers come to terms with the fact that their life circumstances have changed, and sub-4% mortgage rates aren’t returning anytime soon. Additionally, some newbie investors who piled into the market during the boom are realizing that being a landlord isn’t easy.

Why are new listings still below pre-pandemic levels?

The reason that new listings still remain suppressed boils down to “switching costs.” Spiked mortgage rates have made the prospect of trading in a lower monthly payment/lower mortgage rate for a substantially higher one a daunting financial challenge. Some can’t qualify to make the switch. This financial burden, coupled with the psychological aspects of the change, has contributed to a reluctance among homeowners to list their properties for sale. ResiClub call sthis the lock-in effect.

Keep in mind that "news listings" are different from "active listings." New listings represent properties that go for sale within a given month, while active listings encompass all properties currently available for sale on the market that month. To illustrate, consider a car dealership: "new listings" correspond to newly arrived car deliveries, while "active listings" encompass the vehicles present on the car lot. In ResiClub’s perspective, we use new listings as an indicator for potential sales (and the “lock-in effect”) whereas we use "active listing/months of supply" as a gauge for the housing supply-demand equilibrium. If active listings, like a car lot, accumulate as demand diminishes, it can suggest a softening market.

America's 2 publicly traded single-family landlords are back to being net sellers

At least that was the case in Q1 2024.

In Q1 2024, Invitation Homes—America's largest single-family landlord—purchased 273 homes and sold 399 homes.

In Q1 2024, American Homes 4 Rent purchased 460 homes and sold 471 homes. (Of those 460 purchases, 441 were newly constructed homes via their in-house build-for-rent program).

While American Homes 4 Rent added 460 homes last quarter, none of those were in Texas.

Indeed, in Texas, American Homes 4 Rent (AMH) purchased zero homes and sold off 185 homes in Q1 2024:

Houston -75 homes

Dallas -58 homes

Austin - 32 homes

San Antonio -20 homes

What’s AMH doing in Texas? ResiClub will look into it.

Big picture: Shortly after the Fed transitioned into quantitative tightening mode in 2022, numerous institutional landlords reduced their "scatter" home purchases while maintaining their usual portfolio adjustments. Although there's a bit of a resurgence of capital flowing into build-for-rent projects, ResiClub still perceives the "scatter" buying sector as "constrained."