Lower mortgage rates slow inventory growth

Have lower mortgage rates already started slowing the housing supply? I have a simple weekly growth model with the Alts inventory data: when rates are high, above 7.25%, inventory should grow in between 11,000-17,000 weekly. This has happened six times this year and while that would be an average stock growth level with higher numbers, it didn’t happen even once last year.

With mortgage rates recently falling below that 7.25% level, stocks have not once failed to reach this growth model. Still, I would consider the last month of stock growth to be healthy. We’re getting closer to the seasonal decline in active inventory, which could play a role in the slowdown here. However, 2024 looks much healthier than the 2023 data because we desperately needed to get rid of those historically low levels of active listings.

Weekly home inventory data

As we approach the traditional seasonal decline for active inventory, we’re working our way back to 2019 levels. Curiously, those levels were the lowest in five decades before 2020. So 2024 is a positive year for inventory growth as higher interest rates have done their work . This week the stock grew by 5,721.

• Weekly inventory change (August 9 – August 16): Inventory increased from 692,752 Unpleasant 698,473
• Same week last year (August 11 – August 18): Stock rose from 492,903 Unpleasant 497,361
• The lowest inventory level of all time was in 2022 240,497
• The annual inventory peak for 2024 is over this week 698,473
• For some context, the active listings for this week in 2015 were 1 212,129

New advertising data

Another positive story is the new advertising data – a key variable explaining this year’s inventory growth. While I didn’t meet my minimum goal of 80,000 new listings during this year’s seasonal peaks, I’m glad we saw growth. Two weeks ago I got a little excited when new deals started popping up as mortgage rates dropped, but this week we didn’t get such a good result. However, 2024 is still an improvement over 2023, which was the lowest new listings data ever.

Here you will find the number of new listings from the past week in recent years:

• 2024: 67,153
• 2023: 59,158
• 2022: 67,560

Price reduction percentage

In an average year, a third of all homes are reduced in price; this is the standard home activity. As mortgage rates rose earlier this year, leading to increased inventory, the rate of price reductions grew higher than the past two years. We are getting closer to the point where 2024 price reduction rates will be lower than the levels we saw every week in 2022.

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: 39.4%
• 2023: 36%
• 2022: 39%

Weekly ongoing sales

Below you will find the Alto’s research weekly ongoing contract data year on year to reflect real-time demand. We only show a pinch of growth year after year.

• 2024: 365,681
• 2023: 365,097
• 2022: 408,689

Buy application data

Since mortgage rates recently fell more than 1%, we’ll draw a line in the sand at that point to track purchase application data for the remainder of the year. In the last 10 weeks there has been purchase request data six positive points vs four negative prints. Keep in mind that purchasing apps traditionally wait 30 to 90 days before reaching sales data, so this won’t have an immediate impact. Still, it does explain how the recent NAR The pending home sales data beat estimates in the positive direction as people looked for big negative data.

Since mortgage rates started falling in November 2023, we’ve seen it 18 positive prints, 17 negative prints And two flat prints in the week-to-week data. However, when mortgage rates started to rise earlier this year, we saw a drop in demand.

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%

Ten-year yields reached a high of 4.70% this year as economic data exceeded expectations early on and inflation rates rose higher. However, mortgage rates did not track 10-year rates as closely as last year as mortgage spreads improved in 2024.

Now we are trying to get below that key level of 3.80% on the 10-year yield, which has been difficult since the beginning of this year. We need more economic and labor market weakness to get lower and stay lower. So far that has not happened and we have tested this level three times, so it will be difficult to get mortgage rates below 6% without breaking this level.

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. This year we don’t have that variable and spreads have improved sooner than I thought, which has helped mortgage prices. We also have a lot of room for downside in terms of spreads.

If we took the worst levels of 2023 spreads and included them today, mortgage rates would be the same 0.50% 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.

Upcoming week: Powell’s Jackson Hole speech

On Friday we have the big Jackson Hole event, where Fed Chairman Jerome Powell will give a speech. Powell is widely expected to lay the groundwork for the Fed’s first rate cut in September. We must remember that even if the Fed had already cut rates three times, it would still be pursuing a restrictive policy. We’ll hear more speeches from the Fed president this week, and we’ll get data on existing and new home sales, as well as some data on bonds and manufacturing. In short, there is a lot that can move this week