Is the peak in housing inventory for 2024 already behind us? One of the positive aspects of 2024 is the buffer created by higher mortgage rates, which means we have more homes to work with if the economy softens and rates decrease, compared to the years 2020-2023.
It has been consistently mentioned that with mortgage rates above 7%, inventory should increase by 11,000-17,000, and this has happened six times this year within that range. However, with recent declines in mortgage rates, hitting those targets has become more challenging. Just before the holiday weekend, we saw a slight decrease in inventory week to week.
Weekly housing inventory data
Despite recent fluctuations in inventory, 2024 has been a success story as we have moved away from historically low active inventory levels. This aligns with the goal of seeing inventory levels rise due to higher rates in 2021 and 2022, as we cannot assume rates will remain in the 7%-8% range indefinitely.
Several months ago, the expectation was that a softer labor market would lead to a decline in mortgage rates, which has indeed happened. The housing market now looks more promising with increased inventory, as discussed recently on CNBC.
- Weekly inventory change (Aug. 23-Aug. 30): Inventory decreased from 704,744 to 704,335
- The same week last year (Aug. 25 -Sept 1): Inventory increased from 503,924 to 509,562
- The lowest inventory level was in 2022 at 240,497
- The peak inventory for 2024 was last week at 704,744
- For comparison, active listings for the same week in 2015 were 1,204,810
New listings data
New listings are currently experiencing their traditional seasonal decline. 2024 is recorded as the second-lowest year for new listings in history. Here are the numbers for new listings last week compared to previous years:
- 2024: 59,195
- 2023: 59,081
- 2022: 62,775
Price-cut percentage
In an average year, about one-third of all homes receive a price cut, which is a standard housing activity. The rise in mortgage rates has led to an increase in price cuts, especially with rising inventory. However, this trend has slowed down with falling rates.
Several months ago, it was predicted on the HousingWire Daily podcast 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 previous years:
- 2024: 39.3%
- 2023: 36%
- 2022: 39%
Weekly pending sales
Below is the Altos Research weekly pending contract data reflecting real-time demand. There has been no growth in week-to-week data, and a significant gap is starting to form in year-over-year data. It is noted that mortgage rates began to rise towards 8% around August last year, creating a favorable comparison for year-over-year growth in data.
- 2024: 368,076
- 2023: 358,408
- 2022: 404,076
10-year yield and mortgage rates
The 2024 forecast includes:
- A range for mortgage rates between 7.25%-5.75%
- The 10-year yield between 4.25%-3.21%
Despite recent economic data and a slight pivot by Jerome Powell, the 3.80% level for mortgage rates has remained stable. The hope is for this level to break with more economic weakness, leading to lower rates. While there wasn’t much movement in 30-year mortgage rates last week, the spreads remained favorable.
Mortgage spreads
In contrast to the negative storyline surrounding mortgage spreads in 2023, there hasn’t been a crisis event this year, and the Federal Reserve is beginning its rate-cut cycle. As we approach these rate cuts, it is expected that spreads will improve. While the improvement has been earlier than anticipated, comparing the spreads to 2023 reveals a positive trend.
If we were to consider the worst spread levels from 2023, mortgage rates would currently be 0.58% higher. While not yet at average levels, the improvement in spreads this year is a positive development.
Purchase application data
It’s important to note that purchase applications have a seasonal trend, with peak months from the second week of January to the first week of May, followed by a decline in volumes. Despite the weekly data showing negativity for the year, the last 12 weeks have actually seen the best performance for purchase apps. The data indicates that purchase apps typically look forward 30-90 days and are influenced by mortgage rates, which need to be below 6% for sustained growth.
Since mortgage rates have recently dropped by more than 1%, it will be interesting to track purchase application data for the remainder of the year. In the last 12 weeks, there have been seven positive and five negative prints for weekly purchase apps, with a 1% growth last week.
As we analyze the week-to-week data since rates started falling in November 2023, there have been 19 positive, 18 negative, and two flat prints. The focus now shifts to whether rates can continue to stay low amidst economic concerns.
The week ahead: Jobs week alert!
Following Powell’s recent remarks and the upcoming September Fed meeting, this week’s job data is crucial. Economic indicators, bond auctions, and the Fed’s beige book will also play a role in determining if mortgage rates will decrease further. The aim is to break the 3.80% level, inching closer to the forecasted mortgage rate range for 2024.
For now, economic data will be more influential than lower rates, especially after the significant drop from 2023 highs.
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