Lower mortgage rates tend to take housing supply off the market and demand has been picking up lately as rates have fallen. However, the recent drop in housing inventory has more to do with seasonality factors than lower mortgage rates.
Higher mortgage rates did push inventory higher during the seasonal period when it would normally be declining. However, seasonality tends to rule the day eventually. The question now is what will inventory look like in the spring if mortgage rates keep falling?
Purchase application data
Now that mortgage rates have fallen from a bit over 8% toward 7.32%, we can see the immediate impact as purchase application data was positive for the third straight week. Last week, it was up 4%, making the year-to-date count 21 positive prints versus 23 negative prints and one flat week.
The rule of thumb is that it’s a material difference if we get 12-14 weeks of a positive trend. Last year, we had three months of a positive data run as rates fell from 7.37% to 5.99%. So for now, three weeks of positive purchase applications is a small but important step in the right direction.
Mortgage rates and the 10-year yield
The 10-year yield ended the week roughly flat. Mortgage rates started the week at 7.38% and ended at 7.32%; it was a light holiday trading week, so we shouldn’t make too much of it. Instead, let’s look at the future: If the 10-year yield can break under 4.34% with some kick from bond buyers, we have an excellent shot at getting under 7%.
It’s essential to think about rates in this light. Last year in November, we had a noticeable move lower in mortgage rates, and the forward-looking housing data got better, but almost everyone ignored it. No more excuses if this happens again, hence why reading the weekly tracker reports is a good thing.
Weekly housing inventory data
As we head toward the end of the year and start the countdown to Christmas, it looks certain that I will not have even one week of the kind of inventory growth I was hoping for when mortgage rates got above 7.25%. I was looking for at least a few weeks of inventory growth between 11,000-17,000, and it has yet to happen — even when mortgage rates got to 8%.
Housing inventory fell this week, which is 100% related to seasonality. If mortgage rates hadn’t reached 8% this year and stayed below 7.25%, the seasonal decline of inventory would have started earlier. However, with mortgage rates down to 7.32%, we need to keep a closer eye on the weekly data, especially going into spring 2024, if rates fall more.
Last year, according to Altos Research, the seasonal peak for housing inventory was Oct. 28.
Weekly inventory change (Nov. 17-Nov. 24): Inventory fell from 569,898 to 565,875
Same week last year (Nov. 11-Nov. 18): Inventory fell from 569,571 to 564,571
The inventory bottom for 2022 was 240,194
The inventory peak for 2023 so far is 569,898
For context, active listings for this week in 2015 were 1,104,514
New listings data fell weekly but showed positive year-over-year growth. This has been a talking point of mine for months, as I brought this up on CNBC over two months ago, which is a positive story. Most home sellers are buyers, and we want the new listings data to show growth year over year since it appears that we have formed a bottom in 2023. No matter how high mortgage rates got, they didn’t create a new bottom range of new listings.
This week’s new listings data versus the past two years:
2023: 48,587
2022 45,859
2021 51,933
Traditionally, one-third of all homes take price cuts before they sell. When mortgage rates rise and demand decreases, the percentage of homes with price cuts usually increases. One of the things that I will never forget about this year is that even with higher home prices and mortgage rates, the price cut percentage in the second half of 2023 has been consistently 4% below 2022 levels, showing how different this market was compared to one year ago.
Price cut percentages this week over the last few years:
2023: 39%
2022: 43%
2021: 27%
The week ahead: Housing data, inflation report and jobs Friday
This week, we will have new home sales, pending home sales and home price data. We also have the Federal Reserve’s favorite inflation report coming out Thursday with jobless claims. Then we have jobs Friday. This would usually be the week that we also get JOLTS data and the ADP report, but that will come next week, so we have a lot of data to work with this week to move rates.
