Total housing inventory growth has been slow in 2023, but with rising mortgage rates over the last few months, inventory has grown a bit faster than average. The question now is: Have we hit the seasonal peak in inventory for 2023? The housing inventory growth rate has decelerated for three weeks, and we were barely positive last week, with an increase of only 59 homes. Does this mean we finally hit the peak, or is the pre-holiday weekend pushing the data lower than usual?
Weekly housing inventory data
All I wanted for Thanksgiving and Christmas was just a few weeks of active inventory growth between 11,000 – 17,000. But even with mortgage rates getting as high as 8%, we’ve yet to hit within that range. With seasonality kicking in, it doesn’t look good for me this year.
Last year, according to Altos Research, the seasonal peak for housing inventory was Oct. 28. We might have reached the peak in inventory this week.
- Weekly inventory change (Nov. 3-Nov. 10): Inventory rose from 566,882 to 566,941
- Same week last year (Nov. 4-Nov 11): Inventory fell from 575,798 to 572,347
- The inventory bottom for 2022 was 240,194
- The inventory peak for 2023 so far is 566,941
- For context, active listings for this week in 2015 were 1,135,887
The one positive data line for inventory in 2023 is that new listing data has formed a bottom, and no matter how high mortgage rates have gone, we haven’t seen a brand-new low. Four weeks ago, I said on CNBC that we should be forming a bottom with some flat year-over-year growth prints coming in the second half of 2023. We saw some good growth this week, and hopefully, in 2024, we can close the gap and get back to 2021-2022 data on new listings. That is the critical period for new listing data to grow; remember, most sellers are buyers.
Traditionally, one-third of all homes take price cuts before they sell. When mortgage rates rise and demand decreases, the percentage of homes with price cuts can grow. This is the crazy stat for 2023: even with higher home prices and rates recently, we haven’t been able to catch up to price cuts in 2022 when home prices were falling month to month.
Even as mortgage rates got to 8%, we have consistently been 4% below last year’s levels of price cuts. This explains why home prices fell last year, with crashing sales and a higher percentage of price cuts. This year’s home sales have been falling more slowly, and we have fewer price cuts, so prices have stayed firmer compared to 2022 levels.
- 2023: 39%
- 2022: 43%
- 2021: 28%
Mortgage rates and the 10-year yield
Mortgage rates started to fall on Oct. 23 and went from 8% to 7.38% on Nov. 3. Last week, mortgage rates rose toward 7.56%. We did have a lousy bond auction that sent the 10-year yield higher along with mortgage rates. The 10-year yield got as low as 4.48% before heading 18 basis points higher. In addition, Federal Reserve Chairman Powell gave a presentation where people believed his talking points were hawkish, but still, the real deal this week was the bad bond auction.
The history of mortgage rates and the 10-year yield has been that once the Fed is done hiking rates, the bond market rallies and mortgage rates head lower. So the question is, have mortgage rates peaked and the next move will be to under 7%, not over 8%? I believe this will be the case if the economic and labor data gets softer because the Fed has expressed concern about long-term rates being this high. However, this has always been about the labor market and jobless claims data.
Purchase application data
Purchase application data was up 3% versus last week, making the year-to-date count 19 positive prints, 23 negative prints, and one flat week. If we start from Nov. 9, 2022, it’s been 26 positive prints versus 23 negative prints and one flat week. Now that we are past Nov. 9, 2023, we can retire this data, as this was the date I believed the housing market dynamics shifted last year.
The week ahead: It’s inflation week and housing starts
We will get CPI and PPI inflation data this week, and the core CPI data might be a bit more firm than some people want to see due to an uptick in medical services data. We will also have retail sales, which came in a big beat last month.
For housing, the builder’s confidence and housing starts are also on tap this week, so it should be a fun week! Another variable to deal with: Moody’s downgraded the U.S. debt to negative on Friday night so let’s see what reaction we get from that move on Monday. We might see some bond market volatility Monday morning from the downgrade, but this should be a short-term event.
