The mortgage rate lockdown premise holds that very few people will list their homes when mortgage rates are this high, thus suppressing inventory. But 2024 has proven that theory wrong. 2024 has had healthy inventory growth despite mortgage rates above 7%. Also, for the third time this year, I have hit my target of weekly inventory growth between 11,000 -17,000, thus leading to more inventory than we saw in 2023.
Weekly housing inventory data
My big goal this year was to get some weeks with inventory growth between 11,000 and 17,000 homes as long as mortgage rates were over 7.25%. Excluding the one holiday rebound week, which I don’t count, we have hit the mark three times this year. Each time, inventory has squared right into the model as long as rates stay elevated. This week, we saw inventory growth of 16,532. All smiles here — last year, we didn’t have this type of positive growth, something I talked about on Yahoo Finance a few days ago.
- Weekly inventory change (May 17-May 24): Inventory rose from 578,016 to 594,548
- The same week last year (May 19-May 26), Inventory rose from 424,907 to 433,838
- The all-time inventory bottom was in 2022 at 240,194
- This week is the inventory peak for 2024 at 594,548
- For some context, active listings for this week in 2015 were 1,130,873
New listings data
One of the more positive stories for 2024 outside of inventory growth has been the growth of new listing data. I have been slightly disappointed in the new listing data only because I was sure we would get a print above 80,000 this year and was hoping for a range of 95,000-110,000 in the peak seasonal period. It doesn’t look like that will happen, as seasonality will kick in soon. Remember, for next week, new listings data will take a Memorial Day hit lower as it does each year, and then it rebounds.
Here’s the new listings data for last week over the last several years:
- 2024 72,329
- 2023: 62,150
- 2022: 82,725
Price-cut percentage
In an average year, one-third of all homes take a price cut — this is standard housing activity. When mortgage rates increase, demand falls, and the price-cut percentage grows. When rates drop and demand improves, the percentage falls.
This is one of the reasons I believe months down the road, we will see a cooling in home prices, as I talked about here with the latest existing home sales report. Below is the price-cut percentage for last week over the last few years.
- 2024: 35%
- 2023: 30%
- 2022: 23%
10-year yield and mortgage rates
Last week with the 10-year yield, we had only one event that moved the bond market: the stronger-than-expected PMI service sector report that shot yields higher, but we ended the week just a few basis points higher at 4.47%. Mortgage rates didn’t moved too much last week.
Spreads
The spread between the 30-year fixed mortgage and the 10-year yield has been awful since 2022. However, it worsened last year after the banking crisis, which was a big negative for rates. The good news this year is that the spreads are acting much better. I had assumed the spreads would get better closer to the first-rate cut, but that rate cut didn’t happen and the spreads improved earlier than I thought. Mortgage rates are still 0.75%-1.00% higher than they should be when the spreads are average. However, it could be worse: If the spreads were at the worst levels we saw last year, mortgage rates would be 0.60% higher.
Purchase application data
The seasonality of purchase application data is ending, as I usually weigh this index from the second week of January until the first week of May. Traditionally, volumes fall after May, so we are at the end of the road here. As we can see in the chart below, only a little has been happening with purchase application data all year long. Last week, purchase apps fell 1% week to week and down 11% year over year
Since November 2023, when mortgage rates started to fall, we have had 12 positive prints versus 11 negative prints and two flat prints week-to-week. Once mortgage rates began rising in 2024, some demand was removed. As we can see, the year-to-date data isn’t even positive for 2024. So far, in 2024, we have had six positive prints, 11 negative prints, and two flat prints.
A big week ahead
We are packing a lot of stuff into a short holiday week. We’ve got the critical Fed PCE inflation report, which might give the bond market more clarity. We also have S&P CoreLogic Case-Shiller and FHFA home price growth reports. Remember that the price-growth data will cool down in the second half of 2024.
We also have pending home sales coming up and more Fed speeches, which will tell us the same story: we need the labor market to break before the Fed finds the confidence to discuss cutting rates in any meaningful way.
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