How will mortgage rates impact seasonal inventory in 2024?

Key Takeaways:

– Weekly housing inventory data shows a slight increase in housing inventory year over year, although it fell week to week
– New listings data is showing positive growth year over year, but not as much as desired
– The percentage of price cuts on homes has been decreasing since 2022 and is expected to continue decreasing in 2023
– The 10-year yield is a key factor for housing in 2024, with a critical line at 3.37%
– Mortgage rates are expected to range between 5.75% and 7.25% based on the 10-year yield
– The labor data is more critical for mortgage rates than inflation growth rate
– Purchase application data saw a decline in the past week, but overall has been positive for 2024
– Manufacturing data, household credit data, and jobless claims data are expected in the upcoming week
– The 10-year yield and Federal Reserve remarks have the potential to impact the market
– The Federal Reserve is focused on keeping prices stable and employment high


Weekly housing inventory data

One substantial positive story for 2024 is that we have more housing inventory year over year. It’s not a lot, but anything is positive, which I will take. I am a very pro-housing supply person and will feel much better about the housing market when we return to pre-COVID-19 levels for total active listings. However, last week, inventory fell week to week but was up year over year.

Here is a look at last week:

  • Weekly inventory change (Jan. 19-26): Inventory fell from 503,233 to 497,389
  • Same week last year (Jan. 20-27): Inventory fell from 466,391 to 457,717
  • The inventory bottom for 2022 was 240,194
  • The inventory peak for 2023 is 569,898
  • For context, active listings for this week in 2015 were 936,253

New listings data

I have been hoping for more new listings data growth in 2024 and even though we’re positive year over year, it’s just not as much as I would like. But at least it’s positive! New listings were trending at the lowest levels ever in 2023, but that should not be the case in 2024. Never forget most sellers are buyers of homes as well, especially if the economy isn’t in a job loss recession. This is a topic I recently discussed on CNBC.

Weekly new listing data for last week over the last several years:

  • 2024: 44,167
  • 2023: 40,767
  • 2022: 40,370

Price cut percentage

Every year, one-third of all homes take a price cut before selling — this is very traditional housing activity. However, when mortgage rates rise and demand gets hit, the price cut percentage data grows year over year.

A perfect example was in 2022: when housing inventory rose faster as demand crashed, the percentage of price cuts rose faster. That increase matched the slope of the inventory increase, and people needed to cut prices to sell their homes. Existing home sales stopped crashing after November of 2022 and this data line has stabilized. As long as this trend continues, we will go below the price cut percentage in 2023 in the spring of this year. 

This is the price-cut percentage for the same week over the last few years:

  • 2024: 30.6%
  • 2023: 33%
  • 2022: 19.2 %

Mortgage rates and the 10-year yield

The 10-year yield is the key for housing in 2024. In my 2024 forecast, I have the 10-year yield range between 3.21%-4.25%, with a critical line in the sand at 3.37%. If the economic data stays firm, we shouldn’t break below 3.21%, but if the labor data gets weaker, that line in the sand — which I call the Gandalf line, as in “you shall not pass” — will be tested. 

This 10-year yield range means mortgage rates between 5.75%-7.25%, but this assumes spreads are still bad. The spreads have been improving this year so much that if we hit 4.25% on the 10-year yield, we won’t see 7.25% in mortgage rates.

It was a crazy week for the 10-year yield and mortgage rates as it was jobs week and the Federal Reserve held its Federal Open Markets Committee (FOMC) meeting. The 10-year yield started at 4.13%, got as low as 3.81%, and ended the week at 4.02%. Mortgage rates started the week at 6.88%, fell to a low of 6.63%, then shot up to 6.92% on jobs Friday as the labor data came in stronger than anticipated and the 10-year yield spiked higher with mortgage rates, as you can see in the chart below. I also wrote about the jobs report in this article.

I have always stressed that the labor data is more critical for mortgage rates than the inflation growth rate at this stage. The growth rate of inflation is slowing down noticeably. PCE inflation data is running below 2% on the three- and six-month data line trends, but the 10-year yield is still over 4% and we are near 7% mortgage rates. If jobless claims data ran over 323,000 on the four-week moving average, that would be a different story, as the 10-year yield would be much lower.

Purchase application data

Last week was the first negative week in the purchase application data report since rates fell, as we saw a decline of 11% weekly and they were down 20% year over year. Rates had been ticking up a bit higher, but before last week, it didn’t impact the data much. Eight out of the last nine weeks that I have counted (after making some holiday adjustments) are positive, and for 2024, we have two positive prints versus one negative print.

We always want to weigh this index after the second week of January to the first week of May: After May, total volumes traditionally always fall. Much like 2022-203 data, we have a bounce in demand as mortgage rates have fallen. The question is: how will the rest of the heat months act? Last year, rates spiked up higher and then headed toward 8%. This year should be a different story unless the Fed messes it up.

The week ahead

After a crazy week of labor data and remarks by Fed Chair Jerome Powell, we should have a calmer week with some manufacturing data, household credit data and the all-important jobless claims data.

I will be very interested to see how the 10-year yield trades, especially after Powell talks on 60 Minutes Sunday night — that has the potential to be a market mover. Remember, to their credit, the Federal Reserve used the term restrictive policy when the 10-year yield broke over 4.25% and headed toward 5%. Talk is cheap, and I will need to see some action before they want lower yields to ensure they focus on their dual mandate by keeping prices stable and employment high.

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Property Chomp’s Take:

Hey there! Let’s talk about some interesting updates in the housing market. One positive thing to note is that we have seen an increase in housing inventory compared to last year. Although it’s not a significant jump, any increase is a step in the right direction. As someone who supports a higher housing supply, I believe we need to get back to pre-COVID-19 levels of active listings to truly stabilize the market. However, in the past week, we did see a slight decrease in inventory compared to the previous week, but it was still higher than the same week last year.

Now, let’s dive into some numbers. Last week, the housing inventory fell from 503,233 to 497,389. In comparison, during the same week last year, it fell from 466,391 to 457,717. It’s interesting to note that the lowest inventory point in 2022 was 240,194, while the peak in 2023 reached 569,898. To put things into perspective, in 2015, there were 936,253 active listings during this week.

Moving on to new listings data, we have seen some growth compared to last year, but not as much as anticipated. It’s still a positive sign though! In 2024, there were 44,167 new listings, while in 2023 and 2022, we had 40,767 and 40,370 new listings, respectively. It’s worth mentioning that most sellers are also buyers, especially when the economy is stable, and this dynamic plays a role in the overall housing market.

Now, let’s talk about price cuts. Traditionally, about one-third of all homes experience a price cut before being sold. However, when demand decreases due to factors like rising mortgage rates, the percentage of price cuts tends to increase. In 2022, for example, as housing inventory rose and demand fell, we saw a significant rise in the percentage of price cuts. This trend has since stabilized, and we expect the price cut percentage to be lower in 2023 compared to last year. The numbers for this week show a price cut percentage of 30.6% in 2024, 33% in 2023, and 19.2% in 2022.

Now, let’s shift our focus to mortgage rates and the 10-year yield. The 10-year yield is a crucial factor in the housing market for 2024. Based on forecasts, we expect the 10-year yield to range between 3.21% and 4.25%, with a critical threshold at 3.37%. Economic data will play a significant role in determining whether we break below 3.21% or test the 3.37% mark. This range translates to mortgage rates between 5.75% and 7.25%, depending on market conditions and spreads.

Speaking of mortgage rates, last week was quite eventful. As it was jobs week and the Federal Reserve held its Federal Open Markets Committee (FOMC) meeting, the 10-year yield experienced fluctuations. Starting at 4.13%, it dropped to 3.81% before ending the week at 4.02%. Similarly, mortgage rates started at 6.88%, hit a low of 6.63%, and rose to 6.92% on jobs Friday. The labor data came in stronger than expected, leading to a spike in both the 10-year yield and mortgage rates.

It’s important to note that the labor data has a more significant impact on mortgage rates than the inflation growth rate at this stage. Although the inflation growth rate has slowed down, the 10-year yield remains high, resulting in mortgage rates hovering around 7%. If jobless claims data exceeds 323,000 on the four-week moving average, we may see a significant decrease in the 10-year yield.

Switching gears, let’s talk about purchase application data. Last week marked the first negative week in purchase application data since rates fell. We saw an 11% decline in weekly data and a 20% decline year over year. However, it’s worth mentioning that eight out of the last nine weeks have shown positive growth in this area. Between January and May, we typically see a surge in demand, followed by a decline in total volumes. Last year, rates spiked up to 8% after an initial increase. This year, we expect a different outcome unless the Federal Reserve interferes.

Looking ahead, we anticipate a calmer week in terms of market activity. We’ll be keeping an eye on manufacturing data, household credit data, and jobless claims data. Additionally, we’ll be paying close attention to how the 10-year yield trades, especially after remarks by Fed Chair Jerome Powell on 60 Minutes. The Federal Reserve’s actions will be crucial in maintaining lower yields and ensuring price stability and high employment.

All in all, the housing market is showing some positive signs with increased inventory and new listings. However, we still have some challenges to overcome, such as fluctuating mortgage rates and the impact of economic data. It will be interesting to see how the market develops in the coming weeks and if we can maintain a stable and thriving housing market.

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