The 10-year bond yield jumped back over 4% and that pushes mortgage rates higher too. Mortgage rates are 40 basis points higher than a month ago, and 100 basis points higher than a year ago. This is not a recipe to keep the home buyer momentum we saw building in December.
As mortgage rates remain higher than last year, inventory is higher than last year as well. Remember that the way to more selection for home buyers is with higher mortgage rates. Higher rates equals higher inventory. Lower rates equals lower inventory.
Spring buyers’ market
It’s the spring buyers market and inventory is falling each week. This is not uncommon in February and especially in the last few years inventory would fall into March or April. The season seems to have shifted later in the year.
Inventory falling, but still higher than last year
So inventory is falling each week. There are more buyers than sellers. However every week for several months inventory continues to build relative to last year. We have slightly more sellers now than we did a year ago and inventory is now 8.8% more than last year at this time. There are 497,000 single family homes unsold on the market across the U.S. — that’s 5,800 fewer homes on the market than last week.
In the last two years, we’ve been in a generally rising interest rate environment. And as a result inventory is rising over recent two years. There are 8.8% more homes on the market now than last year. And mortgage rates are 100 basis points higher.
When will inventory be at normal levels?
If you’re interested in when we get inventory back to those old normal levels, it’ll take a few years with these conditions of higher mortgage rates to get there. A few years. If on the other hand rates fall back down, buyers will gobble up more homes, and available unsold supply will shrink again. These are some of the details we’ll cover in more depth in the webinar.
More sellers this week than last week
Each week, just a few more home sellers are testing this market. There were 7% more new sellers this week than the same week a year ago. There were 44,000 new listings for single- family homes this week, plus another 11,000 immediate sales which were listed and are already in contract.
The pace of new sellers each week remains incredibly restricted, but is showing signs of easing. 7% more sellers than last year is encouraging. But it’s not a lot. There are 28% fewer new sellers than in 2019.
We have few sellers not because rates are high now, but because they were so low for the last decade. Each year with higher rates means 5 million more people have a higher cost basis in their homes and are more likely to resell it. So you can see why it’ll take several years of higher rates to get sellers to come back to the market. If rates fall again, that creates more homeowners who don’t want to sell.
New contracts rise but struggle to break out
Meanwhile, the new contracts each week are greater than last year but are struggling to break out into growth. This week saw 56,000 new contracts for single-family home sales, including 11,000 immediate sales. That’s 2% more than last year. Any growth is good, but this is barely growing now.
Pending sales growth strong
The year-over-year growth rate in pending sales was much stronger in December than it was in January. We’re showing a tiny bit of sales growth over last year. Still, there were more buyers than sellers this week, inventory is falling. It’d be really nice to see the 10-15% sales rate growth that we saw in December. It seems to me that potential is there, especially because we had so many sellers hold off selling in the last 18 months. But after a month of rising mortgage rates, the market momentum has slowed.
Home prices show no sign of abating
Meanwhile home prices continue to show no signs of abating even in the face of these stubbornly high mortgage rates. The median price of single-family homes in the US is just under $425,000. Home prices climb in the spring of course and this year is no exception. Home prices remain a few percent higher than last year at this time. So far this year there have been no signs of home prices retreating. No strong price increases in the data either. As mortgage rates jump, that scenario grows less likely.
New Listings this week came in at $399,000 which is roughly unchanged from last week and 5% greater than last year at this time. New listings prices continue to reflect a market with sufficient buyer demand for the available supply. In February a year ago, we were seeing year-over-year declines in the new listings price which led to home price declines in April May and June. Pricing pressures a year ago were negative, now they’re positive.
Prices in some ways are the slowest indicators in all the Altos data. We have all these ways to measure subtle shifts in supply and demand but home sellers have some inertia on their asking price once the house is listed. It takes longer for those demand shifts to show up in the price data, and even longer to show up in the closed sales prices. Homes that are on the market now get offers in February and March and the sales finally close in April.
Price reductions in normal range
On the other hand, the price reductions data is very sensitive to changes in home buyer demand. When mortgage rates jump, fewer offers get made, so some sellers cut their prices. This happens immediately with a spike in mortgage costs. Currently, 30.6% of the active sellers have felt the need to cut their asking prices from the original list price. That’s in the normal range for this time of year and implies so far this year people are buying homes at these prices.
It can be hard to communicate all this with buyers and sellers. There are folks on the sidelines waiting for rates to drop so they can swoop in for sudden bargains. They may not realize how much competition is waiting right along with them. Meanwhile, mortgage rates are actually rising.
