Could the decrease in mortgage rates already be affecting the housing inventory growth? I have developed a simple weekly growth model using the Altos inventory data: when rates are high, above 7.25%, inventory should grow between 11,000-17,000 weekly. This has occurred six times this year, but it didn’t happen even once last year when rates were higher.
Even though mortgage rates have dropped below the 7.25% threshold recently, inventory hasn’t been able to reach that growth model. However, the last month’s inventory growth can still be considered healthy. As we approach the seasonal decline in active inventory, it may contribute to the slowdown. Nonetheless, 2024 shows much healthier inventory levels compared to 2023, which was at historically low levels of active listings.
Weekly housing inventory data
As we approach the traditional seasonal decline in active inventory, we are gradually returning to 2019 levels, which were the lowest in five decades before 2020. Therefore, 2024 represents a positive year for inventory growth due to the impact of higher rates. This week, inventory increased by 5,721.
- Weekly inventory change (Aug. 9-August 16): Inventory grew from 692,752 to 698,473
- Same week last year (Aug.11-Aug 18): Inventory rose from 492,903 to 497,361
- All-time inventory bottom was in 2022 at 240,497
- Yearly inventory peak for 2024 is this week at 698,473
- For context, active listings for this week in 2015 were 1,212,129
New listings data
Another positive aspect is the new listings data, a crucial factor in explaining this year’s inventory growth. While the minimum target of 80,000 new listings during the peak seasonal weeks wasn’t met, there has been growth. Although there was a slight increase in new listings two weeks ago as mortgage rates fell, the follow-through wasn’t as strong this week. Nonetheless, 2024 shows improvement over 2023, which recorded the lowest new listing data ever.
Number of new listings for last week over the past several years:
- 2024: 67,153
- 2023: 59,158
- 2022: 67,560
Price-cut percentage
In an average year, one-third of all homes experience a price cut, which is a common housing activity. As mortgage rates rose earlier this year, leading to increased inventory, the price cut percentage exceeded the levels of the last two years. We are approaching a point where the 2024 price cut percentage data may drop below the levels seen in 2022 on a weekly basis.
A few months ago, on the HousingWire Daily podcast, I mentioned that price growth data would cool down in the second half of the year. Here are the price-cut percentages for last week compared to the previous years:
- 2024: 39.4%
- 2023: 36%
- 2022: 39%
Weekly pending sales
Below is the Altos Research weekly pending contract data year-over-year to show real-time demand, indicating a slight growth year over year.
- 2024: 365,681
- 2023: 365,097
- 2022: 408,689
Purchase application data
With mortgage rates dropping by more than 1% recently, tracking purchase application data going forward for the rest of the year becomes crucial. In the last 10 weeks, purchase application data has shown six positive versus four negative prints. It’s important to note that purchase applications typically reflect sales data 30-90 days in advance, so the impact may not be immediate. However, this explains why recent NAR pending home sales data exceeded expectations positively.
Since the decline in mortgage rates in November 2023, we have observed 18 positive prints, 17 negative prints, and two flat prints in the week-to-week data. The rise in mortgage rates earlier this year led to a decline in demand.
10-year yield and mortgage rates
My 2024 forecast includes:
- A range for mortgage rates between 7.25%-5.75%
- The 10-year yield between 4.25%-3.21%
While the 10-year yield reached as high as 4.70% this year due to strong economic data and inflation, mortgage rates didn’t closely track the 10-year as they did last year, thanks to improved mortgage spreads in 2024.
Currently, breaking below the key 3.80% level on the 10-year yield has been challenging since the beginning of the year. More economic and labor data weakness is needed to sustain a lower level. Without this breakthrough, it will be difficult to bring mortgage rates below 6%.
Mortgage spreads
In 2023, mortgage spreads were a negative aspect as the collapse of Silicon Valley Bank pushed them to new cycle highs, leading to a banking crisis. However, this year, without that variable, spreads have improved earlier than expected, benefiting mortgage pricing. There is still significant room for spreads to decrease.
If we considered the worst spread levels from 2023 today, mortgage rates would currently be 0.50% higher. While we are not yet at average spread levels, the improvement seen this year is a positive sign.
The week ahead: Powell’s Jackson Hole talk
The upcoming Jackson Hole event featuring a speech by Fed Chair Jerome Powell on Friday is highly anticipated. Powell is expected to lay the groundwork for the first Fed funds rate cut in September. Even with three previous rate cuts, the Fed’s policy would still be restrictive. This week will also see more speeches by Fed presidents, data on existing and new home sales, bond auctions, and manufacturing data, all of which could impact the bond market significantly.
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