The housing stock decreases as mortgage interest rates decrease

Have we seen the peak in housing inventory before 2024? The best thing about 2024 is that higher mortgage rates have created an inventory cushion, so if the economy weakens and rates fall, we will have a lot more housing to work with than we did in 2020-2023.

I have consistently written that with mortgage rates above 7%, stock should grow 11,000-17,000 and this year it has happened perfectly six times in the channel. But because mortgage rates have recently dropped, I haven’t been able to meet my goals, which is no surprise. And last week, right before this holiday weekend, we saw the first small drop in inventory week over week.

Weekly home inventory data

Despite what has happened to inventories in recent months, 2024 has been a positive story as we have come away from historically low active inventory levels. As part of the “team higher interest rates” in 2021 and 2022, this is exactly what I wanted to see happen, because we cannot assume that mortgage rates will remain high between 7% and 8%.

Many months ago I talked about the softening labor market and how it should drive down mortgage rates, which is indeed the case. And I feel much better about the housing market now with more inventory, which I was talking about CNBC recently.

• Weekly Inventory Change (August 23 – August 30): Inventory decreased from 704,744 Unpleasant 704,335
• Same week last year (August 25 – September 1): Stock rose from 503,924 Unpleasant 509,562
• The lowest inventory level of all time was in 2022 240,497
• The annual inventory peak for 2024 ended last week 704,744
• For some context, the active listings for this week in 2015 were 1,204,810

New advertising data

New listings data is experiencing the traditional seasonal decline. 2024 is the second lowest year of new listings in history. Here you will find the number of new listings from the past week in recent years:

• 2024: 59,195
• 2023: 59,081
• 2022: 62,775

Price reduction percentage

In an average year, a third of all homes are reduced in price; this is the standard home activity. Rising mortgage rates last year and this year have led to increasing levels of price cuts, mainly as inventories have risen. This date line has recently been delayed by falling rates.

A few months ago I discussed on the HousingWire Daily podcast that price growth rates would cool off in the second half of the year. Here are last week’s price reduction percentages compared to recent years:

• 2024: 39.3%
• 2023: 36%
• 2022: 39%

Weekly ongoing sales

Below you will find the Altos Research weekly ongoing contract data to reflect real-time demand. There is no growth in the week-over-week data and we are starting to create a more significant gap in the year-over-year data. I’m writing to warn everyone that as of August last year mortgage rates started heading towards 8%, so we’ll have some super easy comparisons to show the growth in some of the data lines year over year.

• 2024: 368,076
• 2023: 358,408
• 2022: 404,076

10-year interest rate and mortgage interest rate

My prediction for 2024 included:

• A mortgage interest rate range between 7.25%-5.75%
• The ten-year interest rate is between 4.25% and 3.21%

Even with a negative task revision and a baby pivot from Jerome Powell recently, the famous 3.80% level has once again been maintained. Unlike the Gandalf line in the sand in 2023 at 3.37%, this is more like Game of Thrones – with Hodor holding up the door while the Whitewalker creatures push to break it open. Over time, as economic and labor market data weaken, this will break. There wasn’t much movement in the 30-year mortgage last week, but spreads were good.

Mortgage spreads

Mortgage spreads were a negative storyline in 2023, as the mortgage market collapsed Silicon Valley Bank and the resulting banking crisis pushed them to new cycle heights. We have had no banking crisis events this year Federal Reserve begins its interest rate cutting cycle. The closer we get to these rate cuts, the more spreads should improve. They improved a little sooner than I thought, but we can see the difference in 2023 in the chart below.

If we took the worst levels of 2023 spreads and included them today, mortgage rates would be the same 0.58% higher now. While we are far from average in terms of spreads, the fact that we have seen this improvement this year is a plus.

Buy application data

Before I give the weekly update on purchasing apps, I would say that I don’t think people are reading the data correctly because they are saying we haven’t made a positive step here. Let me explain.

1. Purchasing apps are very seasonal. The heat months are the second week of January to the first week of May; After May, volumes always drop.

2. The last twelve weeks were the best twelve weeks for app buying of the year, mainly because the year was negative on weekly data. So this is a positive twelve-week curve.

3. The last two times rates fell in 2022 and 2023 – around mid-November, closer to seasonal volume pressures – the positive growth in purchasing apps was halted when rates rose.

4. Typically, apps look ahead 30 to 90 days. I’ve discussed before that I don’t see how existing home sales can have sustainable growth unless interest rates fall below 6%. This way, builders have been able to grow turnover since the low point in 2022. This recent HousingWire Daily podcast expands on this storyline and explains why this is the price we’re paying as house prices spiral out of control and reach record highs.

Since mortgage rates recently fell more than 1%, we’ll draw a line in the sand at that point and monitor purchase application data for the rest of the year. In the last 12 weeks there has been purchase request data seven positive points vs five negative prints. Last week, weekly purchasing apps grew 1%.

Since mortgage rates began falling in November 2023, the weekly data shows 19 positive prints, 18 negative print And two flat prints. As we can see from the data, not much is happening. The question now is whether rates can stay lower and go lower for the first time as people become more concerned about the economy.

The coming week: Jobs week alert!

So after Powell’s baby turned into his Jackson Hole speechwhich I talked about on this HousingWire Daily podcast, this jobs week is extremely important because it’s the last one before the September Fed meeting. We also have manufacturing data, bond auctions and the Fed’s beige book this week. So if you want mortgage rates to drop and break the 3.80% level, we need weaker economic data, a looser Fed and better spreads.

The lowest mortgage rate I predicted in 2024 was between 5.75% and 6.25%, so we’re getting closer to that level. For now, economic data is more important than lower interest rates, following the big drop from 2023 highs.