If I had told you on Dec. 31, 2022, that mortgage rates would hit 8% in 2023, you would reasonably assume housing inventory would sky rocket higher, home prices would fall noticeably, and the number of price cuts would be higher year over year. Instead, the opposite has happened: home prices nationally hit an all-time high, inventory is still down year over year and the percentage of price cuts is 4% below last year’s level.
However, at least on the inventory front, 8% rates are starting to make a difference and we could be on the verge of active inventory being flat or even higher than last year.
Weekly housing inventory data
Even though I haven’t been able to hit my target level of 11,000 -17,000 weekly inventory growth levels in 2023 with higher rates, it is clear that higher rates are doing their traditional work in creating more inventory growth by slowing the market down.
However, the weekly active inventory is still negative year over year and a big reason why is that we are working from a higher base of inventory, so naturally the slope of the curve is slower because existing home sales aren’t crashing like they did last year.
Last year, the seasonal peak for inventory was Oct. 28 according to Altos Research. With mortgage rates near 8% and the growth rate of inventory picking up, it looks like the inventory peak will happen later this year.
- Weekly inventory change (Oct. 20-Oct. 27): Inventory rose from 554,350 to 562,556
- Same week last year (Oct. 21-Oct. 28): Inventory rose from 571,944 to 578,089
- The inventory bottom for 2022 was 240,194
- The inventory peak for 2023 so far is 562,556
- For context, active listings for this week in 2015 were 1,169,130
Once again, we had another week of high mortgage rates but new listing data was unfazed. While new listings are still trending at the lowest levels ever recorded in history, we are forming a bottom in this data. The real test will come in the spring and early summer months of 2024 to see if we can get some increases year over year with merit. On CNBC recently, I brought up the premise of new listings data bottoming out and that we should see some flat to positive data soon in this data line.
Traditionally, one-third of all homes have price cuts before they sell. When rates rise and demand gets weaker, the percentage of homes with price cuts can grow. Now the crazy stats for 2023: even with higher home prices and higher speeds, not only is inventory still negative year over year, but the price cut percentages are still running 4% below last year:
- 2023 39%
- 2022 43%
- 2021 28%
Mortgage rates and the 10-year yield
Mortgage rates stayed elevated this week as the 10-year yield stayed close to the yearly high. However, on a good note, if you’re looking for one, we didn’t see a new yearly high in the 10-year yield this week or a new high in mortgage rates. We did close below 4.87% on the 10-year yield, which is crucial for me. We just need to see some follow-through bond buying to break below this upper range on the 10-year yield.
Mortgage rates ranged between 7.88%-7.97% and we still have itchy-finger bond traders. We have a huge week of labor data and another Federal Reserve meeting coming up this week that could push mortgage rates lower if the Fed talking points are more dovish instead of their very hawkish stance last time. Also, we have a lot of labor data coming up this week that could push mortgage rates lower if the data is weaker.
Purchase application data
Purchase application data was down 2% last week versus the previous week, making the year-to-date count 18 positive prints, 22 negative prints, and one flat week. If we start from Nov. 9, 2022, it’s been 25 positive prints versus 22 negative prints and one flat week.
Now, some people, including myself, were surprised that the pending home sales data came in positive month-to-month last week. However, context is critical with existing home sales data; it’s very rare to trend below 4 million monthly home sales post-1996; we are currently there, but this has been my line in the sand for a long time, and we are just stuck at these depressed levels.
The week ahead: Jobs week and the Fed!
Get ready to buckle your seatbelts; we have four labor reports and the Fed meeting this week. This Fed meeting will be exciting because real yields are very rare for them now, and there has to be some disagreement among Fed members if any of them even talk about hiking again with long-term bond yields this high. Or the Fed could say, well, jobless claims are low, and economic growth is too strong for our liking.
With four labor reports and the unstable activity happening in the Middle East, we have the potential for a wild ride with rates this week.