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The 2023 housing market bent, but didn’t break

And now we have a good foundation for 2024

As we approach Christmas day, we can only hope that the Federal Reserve now realizes their fear of 1970s-style inflation created a rate-hike cycle that disproportionately impacted the U.S. housing market and that they need to be pro-housing again.

Even with all the drama we have dealt with in 2022-2023, the housing market stayed intact and never broke. Let’s look at the tracker for the week before Christmas and see what the forward-looking data  looks like before we open presents. 

Weekly housing inventory data

We are near the end of the year, which means the seasonal decline in housing inventory will take hold until we find the seasonal bottom in inventory in 2024. However, one thing is sure: from 2020 to 2023 we never saw credit-stressed home sellers. We never saw the Airbnb crash that dominated some of the housing headlines in 2023. While inventory levels are still too low for my taste, it’s good that we are not at 2022 levels when we only had 240,194 total active single-family listings for Americans to buy. 

  • Last year, according to Altos Research, the seasonal peak for housing inventory was Oct. 28. This year’s peak was Nov. 17.
  • Weekly inventory change: (Dec.15-22): Inventory fell from 538,767 to 528,601
  • Same week last year (Dec. 16-23): Inventory fell from 522,869 to 508,777
  • 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 1,013,245

One of my concerns with higher mortgage rates was that we could see another new leg lower in new listings data, which wouldn’t be good for housing because most sellers are homebuyers. This got tested in 2023 with 8% mortgage rates; not only did that not happen, but the new listing data was very stable, meaning it was forming a bottom. This is a big Merry Christmas gift for the housing market. Months ago on CNBC, I talked about how we should see some growth in this data in the second half of the year we have! 

However, the key to this data line is that we want to see real year-over-year growth in the spring of 2024 — back to levels of 2021 and 2022. Historically speaking, 2021 and early 2022 were the two lowest ever in new listings data. But once rates went above 6%, since July of 2022, we were treading for 17 months at a new low. For us to have a functioning marketplace, we need new listing data to get back to 2021 and 2022 levels, which means more sales can happen in 2024 This will be something I am rooting for in 2024.

New listings data for the last week in the last several years:

  • 2023: 36,897
  • 2022: 31,794
  • 2021: 35,834

Traditionally, one-third of all homes will have price cuts before they sell. When mortgage rates rise and demand decreases, more homes see price cuts. However, even with mortgage rates reaching 8% this year, we trended below 2022 levels the entire time. We are ending the year with almost 1.5% lower mortgage rates and the price cut percentage data below 2022 levels.

Price cut percentages this week over the last few years:

  • 2023: 36%
  • 2022: 40%
  • 2021: 25%

Mortgage rates and the 10-year yield

Considering the fireworks we had two weeks ago, last week was very tame. Not too much movement on the 10-year yield or mortgage rates. Mortgage rates started the week at 6.65% and ended at 6.68%. We had a lot of interesting economic data, especially the PCE inflation data running at roughly 2% growth using the 3- and 6-month averages. However, last week saw little volatility on the 10-year yield. Next we have the final week of trading with some big bond market auctions happening. We might see some decent movement in the bond market next week.

Purchase application data

This will be the last purchase application update for the year as the MBA takes the holiday week off and we will report the holiday period in the new year. Traditionally, I tell people to ignore the last few weeks of the year as most people are getting ready for Christmas and New Years so volume always falls. However, with that said, last week saw a mild decline of 0.6% on a week-to-week basis, making the year-to-date count 23 positive and 24 negative, with two flat prints. 

Considering that mortgage rates rose from 5.99% to 8.03% and we might have more positive weekly purchase application prints than negative weekly prints this year speaks volumes. The housing market is working from a low bar in sales, but that roughly 4 million core homebuyers stayed steady in 2023. Total home sales should be near 5 million even with the massive home price gains and higher mortgage rates.

The week ahead: Bond auctions and home prices

It will be a quiet week for economic reports; we will have a few home price index reports and some sizable bond auctions that can potentially move the bond market in a holiday trading week.

I want to wish you a happy holiday and a Merry Christmas. I know it’s been rough for the housing market this year with a deficient volume of existing home sales and loan originations. We should have a better 2024 and my 2024 forecast will come out on Jan. 1, 2024. Until then, enjoy the holidays with your family and remember: the housing market took it on the chin for two years and it bent with the lowest sales levels in history when accounting for the civilian workforce, but it didn’t break, and neither did any of you reading this. 

Comments

  1. Thank you for all of your research, analysis, and facts this year, Logan. You’ve been a leader in our space and for that we are grateful. Keep up the great work on your articles, tracker, and podcasts. Reading is good for us! Looking forward to your January 1st, 2024 forecast. Happy Holidays, Merry Christmas, and Happy New Year! May 2024 be the beginning of a new market.

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