We are off and going now, as seasonality has kicked into full gear with the purchase application data. And, so far, it’s been a good start to the year.
Here’s the housing market rundown for the last week:
- Purchase application data showed positive weekly growth again — and the bounce from the bottom is more noticeable now.
- Housing inventory decreased by 6,468 units, a more pronounced decline from the previous week.
- The 10-year yield can’t break lower from the critical level I have discussed, so not much is happening with mortgage rates.
When I talk about seasonality, I am talking about the second week of January to the first week of May. Total volumes traditionally fall after May, so you can get a good sense of how spring is turning out by the end of March.
We have had back-to-back weekly growth of 25% and 3%. However, the key is that the year-over-year declines have stopped going lower, and we have risen noticeably higher from the bottom.
Remember, though, that this is always the case. We had a waterfall dive in purchase apps in 2022 — a historic dive, I would say — so there is a shallow bar to bounce off of. Does this move have more legs to run, and will we need lower mortgage rates to get more growth in this data line?
The key with purchase application data is that this data line looks out 30-90 days, so the growth we see here takes about 30-90 days at minimum to hit the sales data. As I have stressed for some time, this data line started to improve on November 9th, 2022. It will take until February or March to see it in sales data for January and February.
The most recent pending home sales data from last week went positive; this runs in line with what we saw starting in November and December. It’s low bar bounce for now, but the bleeding in housing has stopped, and we are showing some growth.
We focus on the weekly data to give us a forward-looking idea of where sales are going. Hopefully, the evidence I have shown you above, and the fact nobody else was talking about how the purchase application data internals were getting better starting from November 9th, will give you some faith in my models — kind of like the “America is back” recovery model of 2020.
Weekly housing inventory
There is, again, another downside report on weekly inventory, as inventory has fallen noticeably again this week from the week prior. We are running into a timeline where the inventory can fall just because demand has picked up slightly from the lows, and I am keeping an eye on it.
I was concerned about how fast inventory was falling earlier in the year, and then we paused for about two weeks. However, it has now fallen again, and inventory decreased by 6,468. This is not what I want to see, but this is the reality of the world we live in post-2020.
Hopefully we get the seasonal inventory push sooner in 2023 than we did in the last two years, but thankfully, inventory is still higher this year than last year.
- Weekly inventory change (Jan. 20-27, 2023): Fell From 472,122 to 465,654
- Same week last year (Jan. 21-28, 2022): Fell from 276,865 to 271,954
In June 2022, I predicted that as long as mortgage rates stayed high, weakness in demand over time could create more inventory — and we could get back to 2019 levels of inventory in 2023, meaning inventory breaks over 1.52 million using the NAR inventory levels.
Right after I made that forecast, new listing data started to decline earlier and faster than usual, which put a big dent in the forecast. This forecast will get even more complicated if the weekly inventory levels don’t grow.
The NAR data lags a bit, but the most recent existing home sales report shows inventory broke to under 1,000,000 again. This is only the second time in recent modern-day history that inventory starts the year under 1,000,000.
NAR total inventory is currently at 970,000.
It will be critical that we keep an eye on purchase apps and inventory levels going into spring, as we should see the traditional inventory increases that have occurred every spring season outside of 2020. The question is: Will the higher demand trends eat into the inventory growth, and is this happening already?
Even with the big hit in demand in 2022, it’s been a struggle to get total inventory levels back to 2019 levels, which were the four-decade low in active listings before the Covid 19 pandemic hit us.
I would like the traditional spring season inventory levels to grow quicker than we have seen in the last two years. As of now, this hasn’t happened yet — at least not in any meaningful way. However, I am very grateful that total inventory levels are higher this year than last year.
10-year yield and mortgage rates
There wasn’t much action in mortgage rates last week. The 10-year yield has simply been unable to break under the critical level I have been talking about of 3.42%-3.45%.
For now, we are just floating around between 6.15%-6.21%, the mortgage rates last week. This happened while last week’s PCE inflation data showed a cool down continuation of the growth rate of inflation. That inflation data didn’t move the market.
Part of my 2023 forecast for the 10-year yield is that if the economy stays firm, the 10-year yield range should be between 3.21%-4.25%, meaning mortgage rates between 5.75%-7.25%. With economic weakness, bond yields could quickly drop to 2.72%, taking mortgage rates near 5%.
The economic data has been firm enough to keep the recession talk at bay as the labor market is still holding up. However, we have a lot of data coming up next week — and a Federal Reserve meeting.
The week ahead
We will have a busy week thanks to the Fed meeting, job openings data, jobless claims data, and the Friday jobs report — all of which could move the markets. Oh my, it’s going to be fun!
The Fed wants to see labor markets and wage growth weakness. We will see if Chairman Powell has anything to say about current markets betting on future rate cuts.
This week, we’ll also learn whether the job openings data falls or grows. A decline in job openings is something the Fed believes will bring down inflation, as job openings are too high for their taste. While wage growth is cooling down, the Fed prefers to see more weakness in the labor data.
I will also be visiting the great state of Texas and speaking in Houston and San Antonio.
Any weakness in the labor market and wage growth should move bond yields lower. However, as I have talked about for the past few weeks, it’s been hard for bond yields to break lower recently. For example, despite the clear downtrend in the PCE inflation report last Friday, bond yields didn’t go down that day.
We have a busy and critical week ahead of us, which will cap off the exciting month of January. Overall, we have had a positive month in housing data in January, but I would like to have seen more inventory by now. However, the fact that we are above last year’s levels is a plus for everyone.
We will keep a close eye on all the data this week to offer the most updated take on the U.S. housing market.