Mortgage rates, inventory and demand rise as price cuts fall

Key Takeaways:

– Weekly housing inventory rose slightly from the previous week and fell slightly compared to the same week the previous year.
– The inventory bottom for 2022 was 240,194, and the inventory peak for 2023 is projected to be 569,898.
– New listings data is showing growth year over year, although it is not growing significantly.
– The percentage of price cuts for homes is higher in previous years, particularly in 2022 when home sales crashed.
– Purchase applications for homes were positive and showed a 9% increase compared to the previous week.
– The 10-year yield is a key factor for housing in 2024, with a forecasted range of 3.21%-4.25%.
– Mortgage rates and the 10-year yield both rose slightly last week.
– Labor data is more influential than inflation data in determining mortgage rates.
– The upcoming week will feature important reports on inflation, new home sales, and pending home sales.

HousingWire:

Weekly housing inventory data

Here is a look at the first week of the year:

  • Weekly inventory change (Jan. 12-19): Inventory rose from 505,223 to 506,414
  • Same week last year (Jan. 13-20): Inventory fell from 473,406 to 472,852
  • 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 933,746

Yes, the inventory growth rate slowed weekly, but I will take it! I have been waiting for years for a standard inventory data line to start the year, and so far that’s what I’m seeing. Traditionally, the weekly inventory bottoms out in January or February and rises into the spring. The bottom has been in March and April in the past few years. So far, so good in 2024.

New listings data

While new listings data isn’t growing in significant terms year over year — sorry, silver tsunami crowd — it is showing growth year over year. Most sellers are buyers, and new listing data decreased after rates increased in 2022. So, we are working our way back to normal, and lthough we still have a way to go, but I am happy with this. I talked about this very topic on CNBC a few days ago. 

New listings data last week over the past several years:

  • 2024: 44,244
  • 2023: 42,765
  • 2022: 42,620

Price cut percentage

Every year, one-third of all homes take a price cut before selling — nothing abnormal about that. However, this data line accelerates when mortgage rates rise and demand gets hit harder. A perfect example was in 2022: when housing inventory rose faster, the percentage of price cuts rose faster, as home sales crashed. That increase matched the slope of the inventory increase, and people needed to cut prices to sell their homes.

This is not what we’re seeing now, as home sales aren’t crashing like they did in 2022. Sales aren’t growing much, but they’re not crashing as they did in 2022, so we track this data line religiously weekly to get clues, especially with the movement of mortgage rates 

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

  • 2024 31.4%
  • 2023 34.7%
  • 2022 20.6%

Purchase application data

So, the 2024 spring season officially started last week and purchase apps were positive 9% week to week. I believe tracking this data line when mortgage rates are rising is always vital. Of course, we aren’t talking about 8% mortgage rates anymore, but mortgage rates have risen from the recent lows.  So far no damage to the data line yet. We have had a positive trend streak since rates have fallen. I exclude all the holiday weeks and the first week of the year, so we have had seven weeks of positive trend and year-to-data we’ve had one positive print.

We just had the existing home sales report that showed a month-to-month decline. One thing to always remember about purchase application data: it looks out 30-90 days before it hits the sales data, so the December report was too soon to account for the full effect of lower mortgage rates and rising application data.

Also, remember we are working from deficient demand levels, so take the bounce in that context. This isn’t like the COVID-19 recovery, which was fast and had a big volume. 

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%. This assumes spreads are still bad.

Mortgage rates and the 10-year yield both rose last week. Mortgage rates started the week at 6.77% and finished the week at 6.92%. The 10-year yield started the week around 4%, and intraday almost reached 4.20% before heading lower and ending at 4.13%. One positive story in 2024 is that the spreads are getting better this year, and if we get 4.25% on the 10-year yield, we won’t hit 7.25% in mortgage rates.

Last week, we had some excellent labor data from jobless claims. We also had some Fed presidents push back on rate cuts, regarding how many we will have this year. So, always remember that inflation data has fallen noticeably year over year. However, you want to go with labor data over inflation if you’re looking for lower mortgage rates, especially under 6%.

The growth rate on a three- to six-month Core PCE inflation report could be under 2% in the following report. Even with that reality, which the market knows, the 10-year yield today is still above 4%. This looks right to me with a Hawkish Fed and the jobless claims data being low. The closer we get to my critical level of 323,000 on the four-week moving average, the more the bond market will act differently; the headline data just broke under 200,000 again.

Remember, the Fed hasn’t pivoted: they’re less hawkish with their policy because they over-hiked last year and want to take back some of their rate hikes.

The week ahead: Inflation and housing

We have the all-important PCE inflation report coming out Friday, which can show sub 2% PCE inflation data on the three- and six-month averages. We also have new home sales and pending home sales. Pending home sales should show a bounce from the recent report as we will start to filter the positive purchase apps report. If it doesn’t show growth, it should be the last one before it picks up a bit. 

Source link

Property Chomp’s Take:

Hey there! Let’s talk about some interesting housing market data for the first week of the year.

First up, let’s take a look at the weekly housing inventory data. During the week of January 12-19, the inventory rose from 505,223 to 506,414. In comparison to the same week last year (Jan. 13-20), the inventory fell from 473,406 to 472,852. It’s worth mentioning that the inventory bottom for 2022 was 240,194, while the peak for 2023 was 569,898. Just to provide some context, the active listings for this week back in 2015 were a whopping 933,746.

Now, let’s shift our focus to new listings data. While there hasn’t been significant growth in new listings year over year, it is showing some positive growth. After rates increased in 2022, new listing data decreased, but now we’re slowly working our way back to normal. Last week, the new listings data for the past several years were as follows: 2024 had 44,244 new listings, 2023 had 42,765, and 2022 had 42,620.

Moving on to price cut percentage, we see that every year, about one-third of homes take a price cut before selling. However, this percentage tends to increase when mortgage rates rise and demand is affected. In 2022, as housing inventory rose faster, the percentage of price cuts also rose, leading to a crash in home sales. But the situation is different now. While sales aren’t growing significantly, they’re not crashing like they did in 2022. So, we track this data line weekly to get clues about the market, especially in relation to mortgage rates. For the same week over the past few years, the price-cut percentages were 31.4% in 2024, 34.7% in 2023, and 20.6% in 2022.

Now, let’s discuss purchase application data. The 2024 spring season officially started last week, and purchase applications were positive, with a 9% increase compared to the previous week. It’s important to track this data line when mortgage rates are rising, as it provides insight into the market. Although we’re not dealing with 8% mortgage rates anymore, rates have risen from recent lows. So far, there hasn’t been any damage to the data line. We’ve had a positive trend streak since rates started falling. It’s worth noting that purchase application data looks ahead 30-90 days before it reflects in sales data. The recent existing home sales report showed a month-to-month decline, but it’s too soon to account for the full effect of lower mortgage rates and rising application data.

Let’s touch on mortgage rates and the 10-year yield. The 10-year yield is a key factor for the housing market in 2024. The forecast for the 10-year yield range is between 3.21% and 4.25%, with a critical line in the sand at 3.37%. If the economic data remains strong, we shouldn’t break below 3.21%, but weaker labor data could test that critical line. This range translates to mortgage rates between 5.75% and 7.25%, assuming spreads remain unfavorable. Last week, both mortgage rates and the 10-year yield rose. Mortgage rates started the week at 6.77% and ended at 6.92%, while the 10-year yield started around 4% and finished at 4.13%. The good news is that spreads are improving this year, which means we won’t hit 7.25% in mortgage rates if the 10-year yield reaches 4.25%.

Looking ahead, we have some interesting events coming up. The all-important PCE inflation report will be released on Friday, which could show sub 2% PCE inflation data on the three- and six-month averages. We’ll also have reports on new home sales and pending home sales. Pending home sales should show some growth, reflecting the positive purchase applications report. If it doesn’t show growth, it should be the last report before picking up a bit.

Overall, the housing market is off to a decent start in 2024. Inventory growth is steady, new listings are showing positive growth, and the price-cut percentage is not alarming. Purchase applications are on the rise, while mortgage rates and the 10-year yield are increasing but still manageable. It’ll be interesting to see how the market reacts to upcoming events and data releases. Stay tuned for more updates!

Leave a Reply

Your email address will not be published. Required fields are marked *