Can housing prices go down?

Historically speaking, yes. Housing price data going back beyond the great recession and housing bubble 1.0 is sparse, especially for local markets, but the Case-Shiller US Housing Index goes back to the year 2000 giving us a good look at housing price trends. This index is adjusted for inflation, so it combats the argument that this is solely a symptom of infinite money printing, or as I prefer to say money printer go brrr. Technical analysis can be helpful in identifying trends and one indicator I like to watch is the 20-month moving average (20 MMA) which you will see in many of my charts. This is essentially a rolling average of the previous 20 months activity. Housing moves slowly with transactions typically taking a month+/-, so above the 20 MMA we are in an up-trend, below it and we are in a down-trend.

After a decade-long up-trend in prices, we are still above the 20 MMA but something has clearly changed. House prices peaked 53% higher than housing bubble 1.0 (remember, this is adjusted for inflation). You can see the clear acceleration in late 2020 to near parabolic growth, a classic sign of a bubble.

Real Estate Prices 101: Supply and Demand

Let’s focus on the primary factors that drive all markets at their core: supply and demand. You may have heard stories about how abysmally low real estate inventory has been over the last few years, which sent me on a mission to find relevant metrics that may let us know where the trend is headed. The total number of active real estate listings in a market area is a snapshot of active listings on the last day of each month, so this factors in existing inventory, new listings, back on market listings, and listings taken off the market via pending contract, sale or withdrawal.  If the number of active listings is trending down, we have more demand than supply, if the number is trending up, we have more supply than demand. If demand is greater than supply, prices go up, if supply is greater than demand, prices go down. It sounds too simplistic to be true, but this is what drives price discovery in every market. The individual factors that influence supply and demand are a massive topic on their own, interest rates, government subsidies, demographics, etc., we will hone in on those later. Today, we focus on the macro view of long-term trends. Like I said, the housing market is a slow moving one (although I will make an argument in the weeks coming that it is accelerating) so our goal is to ride these long-term trends when possible.

Oklahoma City Metro Markets

So maybe you’re thinking “well I see the chart, but that’s not happening here” to which I would rebuttal, OKC has historically lagged the major market areas by 6 months to a year, meaning we should just now be seeing signs of slowing. Let’s start with a general overview of the entire Oklahoma City Metro Association of Realtors Multi List System (OKCMAR MLS) data set. As you can see, inventory had been decreasing since 2013 (OKCMAR data limit), but 2021 and 2022 saw the supply/demand imbalance get even worse than the previous downtrend. Since Late 2022 supply has rebounded to 2019 levels, breaking above the 20 MMA. If the supply demand theory I put forth earlier is true, that should coincide with an inverse pattern in prices. As you can see the average sales price across all listings peaked around April 2022 a few months after the bottom in active listing count. We see prices accelerated above trend shortly after inventory decreased below trend in late 2020-2022. Similar to the Case Shiller index shown earlier but lagging the nationwide index a bit.

Oklahoma County Markets

As you may know, markets can vary widely even across the same metro due to multiple factors such as location desirability and builder activity. Some areas have seen huge booms in building while others have been constrained. The more developed urban counties have seen less pronounced, but still noticeable increases in inventory. Let’s see what the charts tell us. Oklahoma County, the most populated in the state, home to Oklahoma City, Edmond and Choctaw has seen a noticeable rise in listings getting above the 20MMA and back to 2020 inventory levels. Different graphs, same story.

Cleveland County Markets

Home to Moore, Norman and Noble, Cleveland County has seen a similar uptick in inventory that may show a trend reversal as well. Oklahoma and Cleveland counties are the most developed and populated counties in the metro area, arguably the most desirable and most builder constrained as well. Once again, we see a pretty visible correlation between the bottom in inventory and a top in prices a few months later. The argument holds.

Canadian County Markets

As we move on to the less developed counties, we see a more pronounced jump in inventory. Over the past decade Canadian County, home to Mustang, Yukon, Piedmont and El Reno, has seen huge growth. With an ample supply of flat open land to build on in combination with easy OKC access via turnpikes these areas have seen more new construction than any other area in the metro. What I find interesting about the Canadian county charts, is we see one of the highest jumps in inventory across the metro, yet prices have not come down and remain around the same level as their previous peak in July 2022. Anecdotally, I would speculate to say this is largely driven by the fact that the Canadian county market has huge amounts of new construction which is the primary driver in their inventory. I personally know multiple home builders with houses currently on the market in Mustang and Yukon for over 300 days, and they aren’t budging on the price. Builders need prices to stay high to support their neighborhood comps. How long can they fight the trend though? Oh, and many of them continue to build…

McClain County Markets

McClain County is interesting with a single bottom in inventory around June of 21 followed by a steady increase since. Prices peaked around July of 2022 and have since hovered around the 20 MMA. I will say this county probably has the widest array of property styles, sizes and values. There are many manufactured housing additions with more affordable housing as well as new developments with smaller more affordable homes. You will also find large acreage estates, 3000sf+ communities and everything in between. This being the least homogeneous county probably lends to it not following the same exact pattern as the others.

Logan County Markets

The most pronounced jump in listing activity is seen in Logan county, home to Guthrie, Cashion and Langston. Logan county has also been a hotbed for

new construction with an abundance of land and easy access to Edmond and North OKC. This inventory peak has just recently topped out around January of 2023, likely due to a lag in new construction coming to market. This county is by far the most rural of all the counties we have addressed here, and so this large percentage jump in inventory is interesting. The trend for families to move outside the urban areas and into smaller rural communities may drive demand here, time will tell.

Chart of the Day

Just for fun, here is my favorite chart of an area not in the OKC metro. Arguably the most beautiful part of our state, McCurtain County home to Broken Bow lake and thousands of acres of State and National forest. This area has been flooded with vacation cabin buyers from Texas as it is only a 3-hour drive from the Dallas Fort Worth area (4 hours to OKC). This is a market I am going to watch closely over the coming months and years. The average price here is leaps and bounds above any county in the state at around $700,000 compared to most of the metro at ~$300,000.

What does this all mean?

Right now, it means we need to watch the markets closely and start examining other factors influencing supply and demand. The unprecedented price increases we’ve seen since 2020 have been well above the normal trendlines, partially due to some of the lowest inventory on record driven by record high sales, the questions to ask: what is driving this and is it sustainable? There are numerous factors affecting the housing market that we will look at in the coming weeks and months to see what direction this trend is heading. Supply and demand are easy to gauge but determining how individual factors will affect future supply and demand is much more difficult. It helps to step back and look at the long-term trends in order to make an informed opinion on where we will go. This will also allow us to decide what factors to focus on for future guidance. What I am seeing is the beginning of a reversal in a long-term trend that typically carries for several years in either direction. If this current up trend continues to break down, we may be in for years of price decline.

What I see as a Realtor

From a current street view perspective, as a real estate broker, what I am seeing right now is very low demand, coupled with even lower supply in most markets. What that means is the amount of people buying is way below normal, but the inventory is further below normal. If you list a nice house in a desirable location at a reasonable price right now, it will sell very fast. If you’re looking for a nice house in a desirable area right now, especially under $250,000 be prepared to fight for it. There is however a glut of new construction in certain areas, but the new construction prices are so high (averaging $400k+) they are sitting on the market longer than the cheaper, existing homes which currently present a better value. How long will this be the case? Interest rates have had a real impact on buying power, next week we will consider interest rates in our economy as a whole and how they are affecting the behavior of home buyers, individual investors and institutions alike.

What would you like to hear about?

 I spend copious amounts of time looking at market data across housing and the economy, so this will be a way for me to compile and disseminate my research. Oklahoma Real Estate has been my career for 2 decades now, so naturally that is where a lot of my interest lies. If you’re interested in certain topics, please feel free to reach out and let me know, I would love to hear what others would find value in learning. Currently I plan on providing ongoing housing market data and commentary to show you where I think the market is headed. I also plan on touching on commercial real estate trends, monetary policy, governmental policy, construction, technology, and general economic trends. If these topics interest you, please consider subscribing to our newsletter below: