The haunted house ride with the bond market and mortgage rates continued this week, but one housing data line hasn’t been spooked. New listing data appears unafraid of the mortgage rate ghost story over the last few months. Unlike last year, when new listings data had a noticeable move lower once mortgage rates reached 6%, 8% mortgage rates haven’t had any noticeable impact on the latest new listings data.
Weekly housing inventory data
One of my concerns with higher rates has been whether new listings data would take another leg lower, which wouldn’t be a good thing for the housing market. Not only has that not happened, but we have had an orderly seasonal decline this year — outside some wild swings around Labor Day and schools starting.
This proves that we are trying to form a historical bottom in this data line, something I discussed earlier in the year on CNBC. As we can see in the chart below, it is very steady, considering how crazy rates have been lately.
One of the things I have gotten wrong in 2023 is my premise that if mortgage rates rose, the inventory growth would pick up for a few weeks, at least between 11,000-17,000. However, even with 8% mortgage rates last week, I am still batting a zero in 2023 as inventory growth last week was just 7,900.
Last year, the seasonal peak for inventory was Oct. 28. Last week, according to Altos Research:
- Weekly inventory change (Oct. 13-Oct. 20): Inventory rose from 546,450 to 554,350
- Same week last year (Oct. 14-Oct. 21): Inventory rose from 567,452 to 571,944
- The inventory bottom for 2022 was 240,194
- The inventory peak for 2023 so far is 554,350
- For context, active listings for this week in 2015 were 1,171,430
Traditionally, one-third of all homes have price cuts all year long. When rates rise and demand gets weaker, the price cut percentage can grow. The price cut percentage in 2023 is still 4% below what we had in 2022, even with higher home prices and mortgage rates. Price cut percentages in recent years:
- 2023 38.5%
- 2022 42.5%
- 2021 28%
Mortgage rates and the 10-year yield
The bond market and mortgage rates have had such a wild ride recently, and it reminds me of the action during the first week of COVID-19 when we saw massive volume in buying treasuries. In the same vein, the bond market is now very oversold. However, more importantly, real yields are very restrictive for the economy now. In the last week, the 10-year yield went from 4.62% to 4.99%, ending at 4.92%.
I recently discussed on the HousingWire Daily podcast whether these rates are recessionary because the history of real yields being this restrictive has always led to a recession. Earlier in the year on CNBC I said that the Fed wouldn’t be satisfied until the labor market breaks. Even though the Fed has talked about no more rate hikes, now that the 10-year yield and mortgage rates are higher, they believe the monetary policy is restrictive enough to accomplish the goal they always wanted from the start: attack the labor supply.
Mortgage rates went from 7.66% to 8.03% last week to end at 7.97%. If the Fed wants to create a job-loss recession, attacking the housing market a second time looks like their target. They remain frustrated that the labor market is not breaking.
Purchase application data
Purchase application data was down 6% last week versus the previous week, making the year-to-date count 18 positive prints, 21 negative prints and one flat week. If we start from Nov. 9, 2022, it’s been 25 positive prints versus 21 negative prints and one flat week.
Of course, higher rates have made affordability worse; whenever rates move up or down by just one 1%, millions of potential homebuyers are qualified or not qualified to buy a home.
The week ahead: Home sales data and jobless claims
Next week, we have new home sales and pending home sales — which are at significant risk of a big miss. Jobless claims, of course, come out every Thursday and that has been the key data line for me at this expansion stage. Also, there are many variables worldwide, and who knows what the Fed will say. We will be tracking all the live data to keep you updated.