Have we seen the peak in housing inventory for 2024? The best part about 2024 has been that higher mortgage rates have created an inventory buffer, so if the economy gets softer and rates fall, we have many more homes to work with than we had in 2020-2023.
I have consistently written that with mortgage rates above 7%, inventory should grow between 11,000-17,000 and this year it has happened six times perfectly in the channel. However, as mortgage rates have fallen recently, I haven’t been able to hit my targets, which isn’t a surprise. And last week, just before this holiday weekend, we saw the first tiny decline in inventory week to week.
Weekly housing inventory data
Despite what has happened with inventory in the last few months, 2024 has been a positive story because we got off historically depressed active inventory levels. As part of “team higher rates” in 2021 and 2022, this is precisely what I wanted to see happen because we can’t assume mortgage rates will stay elevated in the 7%-8% range.
Many months ago, I talked about the softer labor market and how that should make mortgage rates fall, which it has. And I feel much better about the housing market now with more inventory, which I talked about on CNBC recently.
Weekly inventory change (Aug. 23-Aug. 30): Inventory fell from 704,744 to 704,335
The same week last year (Aug. 25 -Sept 1): Inventory rose from 503,924 to 509,562
The all-time inventory bottom was in 2022 at 240,497
The yearly inventory peak for 2024 was last week at 704,744
For some context, active listings for this week in 2015 were 1,204,810
New listings data
New listing data is experiencing its traditional seasonal decline. 2024 is the second-lowest new listing year recorded in history. Here are the number of new listings for last week over the previous several years:
2024: 59,195
2023: 59,081
2022: 62,775
Price-cut percentage
In an average year, one-third of all homes take a price cut — this is standard housing activity. Rising mortgage rates last year and this year have created a growing level of price cuts, especially with inventory rising. This data line has recently slowed down with falling rates.
A few months ago, on the HousingWire Daily podcast, I discussed that the price-growth data would cool down in the year’s second half. Here are the price-cut percentages for last week over the previous few years:
2024: 39.3%
2023: 36%
2022: 39%
Weekly pending sales
Below is the Altos Research weekly pending contract data to show real-time demand. There is no growth in the week-to-week data and we are starting to create a more significant gap in the year-over-year data. I’m writing to caution everyone that starting in August last year, mortgage rates began to head toward 8%, so we will have some super easy comps to show growth in some of the data lines year over year going out.
2024: 368,076
2023: 358,408
2022: 404,076
10-year yield and mortgage rates
My 2024 forecast included:
A range for mortgage rates between 7.25%-5.75%
The 10-year yield between 4.25%-3.21%
Even with a negative job revision print and a baby pivot by Jerome Powell recently, the famous 3.80% level has again held. Unlike the Gandalf line in the sand in 2023 at 3.37%, this is more like Game of Thrones — with Hodor holding up the door as the whitewalker creatures push to break it open. In time, with more economic and labor data weakness, this will break. There was not much movement in the 30-year mortgage last week, but the spreads were good.
Mortgage spreads
Mortgage spreads were a negative storyline in 2023, as the collapse of Silicon Valley Bank and the resulting banking crisis pushed them to new cycle highs. We haven’t had any banking crisis events this year and the Federal Reserve is starting its rate-cut cycle. The closer we get to those rate-cuts, the more the spreads should improve. They improved a bit earlier than I thought, but we can see the difference in 2023 in the chart below.
If we took the worst levels of the spreads from 2023 and incorporated those today, mortgage rates would be 0.58% higher right now. While we are far from being average with the spreads, the fact that we have seen this improvement is a plus this year.
Purchase application data
Before I give the weekly update on purchase apps, I would say I don’t think people are reading the data correctly because they are saying we haven’t had a positive move here. Let me explain.
1. Purchase apps are very seasonal. The heat months are the second week of January to the first week of May; after May, volumes always fall.2. The last 12 weeks have been the best 12 weeks for purchase apps for the year, primarily due to the year being negative on the weekly data. So, this is a positive 12-week curve.3. The last two times rates fell in 2022 and 2023 — around the middle of November, closer to the seasonal volume push — the positive growth in purchase apps was stopped when rates went higher.4. Typically, purchase apps look forward 30-90 days. I have discussed before that I don’t see how existing home sales can have sustained growth unless rates get below 6%. That’s how the builders have been able to grow sales since the lows in 2022. This recent HousingWire Daily podcast goes into this storyline, explaining why this is the price we pay with home prices escalating out of control and at record highs.
Since mortgage rates have fallen more than 1% recently, we will draw a line in the sand at that point and track purchase application data for the rest of the year. In the last 12 weeks, purchase application data has had seven positives versus five negative prints. Last week saw weekly purchase apps grow 1%.
Since mortgage rates started to fall in November 2023, the week-to-week data shows 19 positive prints, 18 negative prints and two flat prints. As we can see from the data, not much is happening. The question now is whether rates can stay lower and go lower for the first time now that people are more concerned with the economy.
The week ahead: Jobs week alert!
So after Powell’s baby pivot in his Jackson Hole speech, which I talked about in this HousingWire Daily podcast, this jobs week is enormously important because it’s the last one before the September Fed meeting. We also have manufacturing data, bond auctions and the Fed’s beige book this week. So, if you’re looking for mortgage rates to go lower and that 3.80% level to break, we will need weaker economic data, a more dovish Fed and the spreads to get better.
The lowest mortgage range I had forecasted in 2024 was between 5.75%-6.25% so we are getting closer to that level. For now, the economic data matters more than lower rates after the big move lower from the highs in 2023.
Related
