Housing starts came in lower than estimates in the first month of the year, as the cold winter dampened activity. New construction starts fell to a seasonally adjusted annual rate of 1.331 million units, down 14.8% month over month, according to a report released Friday by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD).
Housing starts in January also fell by 0.7% on an annual basis. Single-family housing starts dropped 4.7% from December to a rate of 1.004 million units. However, they were 22% higher than a year ago, surpassing the 1 million mark for the third straight month. Multifamily starts fell to a rate of 314,000.
The rate at which building permits were issued in January was down 1.5% monthly but up 8.6% annually to a rate of 1.470 million. Notably, the number of single-family authorizations was up 1.6% month over month in January to a rate of 1.015 million units, the highest level since May 2022. Meanwhile, multifamily authorizations were down month over month to a rate of 405,000 units.
Housing completions also sunk compared to December, falling 8.1% to 1.416 million units. Single‐family housing completions fell by 16.3% between December and January, at a rate of 857,000. Meanwhile, multifamily completions came in at a rate of 538,000 in January.
The regions that suffered the most winter storms posted the biggest declines in January. New starts in the Northeast and the Midwest fell 20.6% and 30% month over month, respectively.
Housing inventory remained low in January and new homes still accounted for about 30% of all homes available for sale.
“This spring, there will be more new listings coming onto the market though buyers will still outnumber sellers and there will still be robust demand for new homes,” Bright MLS Chief Economist Lisa Sturtevant said in a statement.
Despite the drop in January, homebuilders are feeling optimistic about the season to come. In fact, homebuilder confidence shot up to a five-month high in February, according to the National Association of Home Builders’ most recent survey.
The 10-year yield is the key for housing in 2024. In my 2024 forecast, I put the 10-year yield range between 3.21%-4.25%, with a critical line in the sand at 3.37%. If the economic data stays firm, we shouldn’t break below 3.21%, but if the labor data gets weaker, that line in the sand — which I call the Gandalf line, as in “you shall not pass” — will be tested.
This 10-year yield range translates to mortgage rates between 5.75%-7.25%, but this assumes spreads are still bad. The spreads have been improving this year so much that if we hit 4.25% on the 10-year yield, we still won’t see 7.25% in mortgage rates. As we saw last week, I already got this wrong in 2024 because we got above 4.25% on the 10-year yield and peak mortgage rate pricing was 7.14%. This means the spreads are acting better in 2024 than I had anticipated.
Serious mortgage rate talk!
We are approaching a critical technical level on the 10-year yield that can cause market drama for mortgage rates. For those who have followed my Instagram story videos for over a year, the essential level of 4.34% is getting close to being tested again. If we break above this level, bond traders can sell bonds and take the 10-year yields much higher if the Fed doesn’t step in.
The Fed has said they don’t want this to happen because policy would be too restrictive, but short-term bond traders don’t care. It was good to see Fed Governor Waller try to push back on the recent move in yields last week, but playing with fire here is not the best thing for the Fed. We have bounced from the 3.80% area twice, once in late 2023 and early 2024. This year we have mostly stayed between 3.80%-4.25% — this isn’t surprising, especially with low jobless claims data.
Jobless claims data, to me, is the most critical data line for rates to go lower in 2024, and it’s been firm so far this year. However, the 10-year yield above 4.34% is not part of the 2024 forecast, and if that happens, look again for Fed members to try to talk the bond market down again if this escalates to a 5% 10-year yield and 8% mortgage rates. The chart below looks at the 10-year yield, and the horizontal lines show why 3.80% and 4.34% are key levels, especially when looking at the downtrend from 5%.
Weekly housing inventory data
The best part of 2024 for me is watching housing inventory grow year-over-year. As we can see below, we are more than double the lows we saw in March of 2022, when I had already deemed the housing market savagely unhealthy. We should see the seasonal bottom soon and then the traditional increase in active inventory to match the growth in new listings data. This also assumes that new listing data stays on its path for growth year over year.
Here is a look at last week:
Weekly inventory change (Feb. 9-16): Inventory fell from 494,862 to 494,029
Same week last year (Feb. 10-17): Inventory fell from 444,129 to 437,282
The recent inventory bottom was in 2022 at 240,194
The inventory peak for 2023 was 569,898
For context, active listings for this week in 2015 were 954,581
New listings data
New listings data saw a week-to-week decline, but it is still up year over year. Mortgage rates have been increasing lately, and I am always mindful that some people will not list their homes to sell and buy another one if rates jump on them. Last year, the data was very steady, even with mortgage rates heading toward 8%. However, 2023 was the lowest new listings data pool ever, which was an unhealthy outcome.
Weekly new listing data for the last week over the previous several years:
2024: 49,559
2023: 42,073
2022: 48,979
Price-cut percentage
Every year, one-third of all homes take a price cut before selling — this is a traditional housing activity that happens every year. However, this data can move stronger in either direction when mortgage rates rise or fall aggressively.
The year-over-year price data has been stabilizing since Nov. 9, 2022. Even with 8% rates last year, the data was negative year over year and we are still showing a decline year over year. However, the gap is narrowing, and the seasonal inventory increase will happen soon. Here are the price cut percentages for last week over the last several years:
2024: 30%
2023: 31.3%
2022: 18.3 %
Purchase application data
Higher mortgage rates are already impacting the purchase application data with three straight negative weekly prints, and rates went higher again last week. Now, while home sales aren’t crashing and we will see a bounce in sales in the following existing home sales report, the forward-looking data isn’t showing growth. As I have stated time and time again, the Fed and the government have a COVID-19 housing economy policy, and keeping sales depressed is in their interest, something I talked about last year on CNBC.
Since November of 2023, we have had eight positive and three negative prints after making holiday adjustments. Year to date, we have had two positive prints versus three negative prints. I know some people have said the last two weeks show positive weekly data, but they are looking at the unadjusted numbers weekly data; we don’t count that.
The week ahead: Existing home sales, jobless claims and Fed talking points
This week we will have the existing home sales report and the leading economic index. We will see a bounce in existing home sales, but it won’t be like in 2023, when sales rose to 4.55 million. Fed Governor Michelle Bowman might come out with some absolute hawkish statements, so keep an eye out on Wednesday when she talks. Of course, my crucial data line is jobless claims data, which comes out every Thursday morning.
Not all is gloomy in the housing market. Redfin’s Homebuyer Demand Index has been on an upward trend since mid-January. The number of home tours has also seen a 16% increase since the start of the year, outperforming the growth observed last year during the same period. In addition, there’s been a 7% year-over-year increase … [Read more…]
So far in 2024, fewer homes are taking price cuts than in 2023, and this trend is on the verge of breaking below the 2023 lows in price cuts percentages. While weekly inventory is still falling, we have year-over-year growth in total active listing and new listings data. This calls into question a mortgage rate lockdown, as mortgage rates are also higher year over year.
What is all this data pointing to? We might have an average year in housing compared to the past four years! So, we need to be very mindful of the weekly data to get clues on the marketplace.
Price-cut percentage
Every year, one-third of all homes take a price cut before selling — this is a traditional housing activity. However, this data can move stronger in either direction when mortgage rates rise or fall aggressively.
A perfect example was in 2022: when housing inventory rose faster as demand crashed, the percentage of price cuts rose faster. After November of 2022, home sales stopped crashing and the price-cut percentage data has stabilized. Even when mortgage rates were approaching 8% last year, the number of homes taking price cuts was always 4% below the 2022 level. Currently, the price-cut percentage is less than 1% from breaking below the lows set in 2023. Demand is rising from a low bar, and total housing inventory levels are still historically low. This is the price-cut percentage for last week over the last few years:
2024: 30.1%
2023: 32.2%
2022: 18.3 %
Weekly housing inventory data
A really positive story for 2024 is that we have higher housing inventory year over year. It isn’t anything to write home about, but it’s a positive story nonetheless. I am a very pro-housing supply person and will feel much better about the housing market when we return to pre-COVID-19 levels for total active listings. Last week, inventory fell week to week but was up over this time last year. I am still hoping we get the seasonal bottom in inventory in February and not March or April.
Here is a look at last week:
Weekly inventory change (Feb. 2-9): Inventory fell from 497,389 to 494,862
Same week last year (Feb. 3-10): Inventory fell from 457,717 to 444,129
The recent inventory bottom was in 2022 at 240,194
The inventory peak for 2023 was 569,898
For context, active listings for this week in 2015 were 947,864
New listings data
The new listing data put a big smile on my face this week! For the first time in a while, this was a good week for new listing data. Over the last few years, we have been trending at the lowest levels ever, so seeing a positive week is great. Also, this brings into question the mortgage rate lockdown premise since mortgage rates are higher yearly. This is something I have been discussing for many months on CNBC.
Weekly new listing data for last week over the last several years:
2024: 51,875
2023: 44,533
2022: 45,594
Mortgage rates and the 10-year yield
The 10-year yield is the key for housing in 2024. In my 2024 forecast, I put the 10-year yield range between 3.21%-4.25%, with a critical line in the sand at 3.37%. If the economic data stays firm, we shouldn’t break below 3.21%, but if the labor data gets weaker, that line in the sand — which I call the Gandalf line, as in “you shall not pass” — will be tested.
This 10-year yield range translates to mortgage rates between 5.75%-7.25%, but this assumes spreads are still bad. The spreads have been improving this year so much that if we hit 4.25% on the 10-year yield, we still won’t see 7.25% in mortgage rates.
Last week was very interesting because we had a few Fed events to deal with. First there was the aftermath of Jay Powell’s 60 Minutes interview. Then the president of the Minneapolis Fed, Neel Kashkari, made statements about how the Federal Reserve policy isn’t as tight as people would believe, presenting his case in this article. However, just a few days later, Kashkari talked about how his gut tells him that two to three rate cuts are indeed in play. I discussed this turn of events with Editor in Chief Sarah Wheeler on the HousingWire Daily podcast.
The 10-year yield closed at the week high on Friday, even though the highly anticipated CPI revisions data showed that the inflation slowdown was accurate and no upward revisions were made.
Mortgage rates didn’t move around too much last week, ranging between 7.04% and 6.95%. However, as we can see, even with significant progress on the growth rate of inflation slowing down, mortgage rates are near 7% and the 10-year yield is still over 4%. My point on this topic has been clear for a while: the Fed hasn’t pivoted, and they have a highly restrictive policy against housing as they still believe in their COVID-19 housing policy keeping home sales trending near all-time lows.
Purchase application data
Last week, we had some confusion on purchase apps, as the unadjusted numbers showed 6% week-to-week growth. We don’t account for that data line ever; the actual numbers showed -1% week-to-week growth, and we are still showing negative 19% year-over-year data. Last year, we had better positive data as mortgage rates headed down toward 6% before rates started higher, so the year-over-year comps will get easier. However, if we had strong housing demand, purchase application data would easily be positive year over year and by double digits as well. For now, just think of a bounce from record lows in demand.
The year-to-date count is two positive reports and two negative purchase application reports. Since mortgage rates started to fall in November of 2023, we have had eight positive and two negative weeks after making some holiday adjustments. This has the potential to take the seasonal inventory bottom to March. However, I am hoping for the bottom in February.
The week ahead: It’s inflation week, plus retail sales and housing starts
We have a lot of data coming up: two inflation reports, retail sales, the builder’s confidence index and housing starts. The CPI inflation data will be exciting over the next six to seven months because we can start to see the rent factor kicking into higher gear to the downside. Even though the Fed says they don’t account for shelter when talking about rate cuts, lower inflation will bring more and more pressure on them to pivot and bring rates down. We will have tons of data lines to work from next week.
High mortgage rates and harsh weather are pushing down home sales, but some house hunters are touring and getting a feel for the market.
The bumpy start to 2024’s housing market continues, with daily average mortgage rates posting their biggest one-day increase in over a year on February 2. The jump came after a hotter-than-expected January jobs report and the Fed’s confirmation that they’re unlikely to cut interest rates in the next two months, which means mortgage rates will probably remain elevated near their current level for at least that long.
Rising home prices are exacerbating rising rates, with the typical monthly mortgage payment just about $100 shy of October’s all-time high. The median U.S. sale price rose 5.4% year over year during the four weeks ending February 4, the biggest increase in over a year. High housing costs are pricing out many would-be homebuyers; pending sales are down 8%, the biggest decline in four months. There are also a few other contributors to sales falling: Harsh winter weather in the first half of January delayed a lot of homebuying deals, and pending sales were improving at this time last year as mortgage rates temporarily dropped.
Still, some house hunters are at least getting a feel for the market. Redfin’s Homebuyer Demand Index–a seasonally adjusted measure of requests for tours and other buying services from Redfin agents–has steadily risen since mid-January, and a separate measure of home tours shows they’ve increased 16% since the start of the year, compared with a 10% rise at this time last year. Some sellers are jumping in, too, with new listings up 7% year over year.
“We’re seeing a bit of recovery with house hunters touring homes, but even demand at the earliest stages isn’t up as much as we would expect at this time of year,” said Chen Zhao, Redfin’s economic research lead. “That’s because mortgage rates are climbing again and winter weather has been harsher than usual in much of the country, keeping some house hunters at home.”
Luis Rojas, a Redfin Premier agent in the Viera West, FL area, said today’s housing market is touch and go. “High mortgage rates brought the local market to a near-standstill from August through November, activity picked up when rates dropped a bit in mid-December, and now it’s slowing down again as rates rise,” Rojas said. “I’m advising buyers–especially first-timers–that the mortgage rates they see in the news aren’t the be-all and end-all. Some local lenders are willing to give rates in the 5% range for new construction projects because any business is better than no business.”
Down 1% from a week earlier; up 3% from a month earlier (as of week ending Feb. 2)
Down 19%
Mortgage Bankers Association
Redfin Homebuyer Demand Index (seasonally adjusted)
Up slightly from a week earlier, but down 7% from a month earlier (as of week ending Feb. 4)
Down 14%
Redfin Homebuyer Demand Index, a measure of requests for tours and other homebuying services from Redfin agents
Google searches for “home for sale”
Down 2% from a month earlier (as of Feb. 3)
Down 16%
Google Trends
Touring activity
Up 16% from the start of the year (as of Feb. 6)
At this time last year, it was up 10% from the start of 2023
ShowingTime, a home touring technology company
Key housing-market data
U.S. highlights: Four weeks ending February 4, 2024
Redfin’s national metrics include data from 400+ U.S. metro areas, and is based on homes listed and/or sold during the period. Weekly housing-market data goes back through 2015. Subject to revision.
Four weeks ending February 4, 2024
Year-over-year change
Notes
Median sale price
$361,498
5.4%
Biggest increase since Oct. 2022
Median asking price
$395,949
7%
Biggest increase since Sept. 2022
Median monthly mortgage payment
$2,607 at a 6.63% mortgage rate
11.5%
Down roughly $110 from all-time high set in October 2023, but up roughly $250 from the four weeks ending Dec. 31
Pending sales
68,872
-7.8%
Biggest decline since October 2023
New listings
70,415
6.6%
Active listings
740,834
-3.5%
Months of supply
4.2 months
Unchanged
4 to 5 months of supply is considered balanced, with a lower number indicating seller’s market conditions.
Share of homes off market in two weeks
33.3%
Up from 32%
Median days on market
48
-2 days
Share of homes sold above list price
22.4%
Up from 20%
Share of homes with a price drop
5.5%
+1 pt.
Average sale-to-list price ratio
98.2%
+0.5 pts.
Metro-level highlights: Four weeks ending February 4, 2024
Redfin’s metro-level data includes the 50 most populous U.S. metros. Select metros may be excluded from time to time to ensure data accuracy.
Metros with biggest year-over-year increases
Metros with biggest year-over-year decreases
Notes
Median sale price
Miami (13.4%)
Anaheim, CA (13.4%)
Detroit (13.3%)
Warren, MI (12.1%)
Chicago (11.3%)
San Antonio, TX (-4.7%)
Austin, TX (-3.7%)
Declined in 2 metros
Pending sales
San Jose, CA (13.8%)
San Francisco, CA (6%)
Anaheim, CA (4.5%)
Riverside, CA (0.4%)
Columbus, OH (0.2%)
San Antonio, TX (-33.2%)
Portland, OR (-30.2%)
Nashville, TN (-21.5%)
New Brunswick, TN (-19.4%)
Houston (-18.5%)
Increased in 5 metros
New listings
Dallas, TX (27.1%)
Miami (26.9%)
Jacksonville, FL (26.3%)
Fort Lauderdale, FL (23.6%)
San Diego, CA (22.1%)
Chicago (-17.8%)
Atlanta (-16%)
Milwaukee, WI (-14%)
Portland, OR (-13.6%)
Nashville, TN (-10.4%)
Declined in 14 metros
Refer to our metrics definition page for explanations of all the metrics used in this report.
It’s no secret that 2023 was a difficult year to buy a home. With mortgage rates briefly topping 8% and home prices breaking records throughout the year, many would-be sellers simply decided not to bother listing their homes, exacerbating already tight inventories.
New data from the U.S. Census Bureau published last week shows how drastically housing inventory has changed since 2020, while weekly data from Altos Research offers some insights on where it goes from here.
Census Bureau data on housing inventory estimates details two cycles this decade – the onset of the pandemic and the rise of interest rates – that have been catastrophic for the nation’s for-sale housing inventory.
2020-2021: The shock to the system
The onset of the pandemic and government lockdowns sparked a frenzy for homes, especially those away from crowded downtowns and with ample space for home offices and homeschooling. Prospective homebuyers were armed with low interest rates, paused student loan payments and stimulus checks.
The number of owner-occupied homes skyrocketed, quickly depleting the number of vacant for-sale homes. Renters occupied fewer homes, and fewer vacant homes were reserved for them.
The number of homes “held off market” – second homes, vacation homes and others that are neither for-sale, for-rent or occupied – shrank. This could be because their owners snagged profits amid rapidly rising prices, because those who can afford second homes paused buying, or a combination of the two.
Seasonal housing, too, dropped considerably. This is likely due to the fact that seasonal housing – defined as homes intended for periodic occupancy such as for holiday resort guests or farm workers – could be profitably sold to meet soaring homebuyer demand and was not needed during the pandemic’s travel restrictions and weak travel demand.
Most of the trends begun in 2020 continued in 2021 except for renter-occupied homes, which rose above 2019 levels in the second half of the year. This was likely a reflection of the prolonged decline in vacant homes for sale, which made it difficult for would-be buyers to find a home to purchase.
Many of the same pandemic forces that set off the homebuying frenzy also fueled a frenetic pace of inflation. In 2022, the Federal Reserve began taking action to combat these market forces by raising interest rates, starting the second cycle of inventory changes.
2022-2023: The high-rate environment
Over two years, the Federal Reserve hiked rates 11 times for a total increase of 5.25 percentage points, the fastest pace of hikes in four decades. It has held rates at an effective rate of 5.33% in every meeting of the Federal Reserve Open Markets Committee since July 2023, including in their meeting last week.
Mortgage rates followed suit, walloping buyers’ purchasing power. The sudden run-up in rates discouraged would-be sellers from listing their homes, as they would be faced with much higher monthly payments for the same size home were they to sell and buy another home – if they even qualified for the same size home as they currently own.
This squeezed inventory even further throughout 2022 and 2023, pushing home prices to record highs month after month.
The high-rate environment further pushed owner occupancy up while pushing homes held off market, seasonal housing and homes vacant for sale down. That the number of owner-occupied homes rose throughout 2023 – an abysmal year for home sales – shows just how tightly recent homebuyers are holding onto their low rates.
High rates, combined with low for-sale inventories and high home prices, have also resulted in a surge in home renters. There were nearly 2 million more renter-occupied homes in the fourth quarter of 2023 than in the same quarter of 2019.
The environment has also prompted many homeowners to list their homes for rent rather than sale. The number of homes vacant for rent in the fourth quarter of 2023 was up 4% since the same quarter five years ago, while the number of homes vacant for sale was down 36%.
When inventory bounces back
The extremes of the 2020s have dealt big blows to for-sale inventories. First the 2020-2021 housing frenzy took a big bite out of existing inventories, then the 2022-2023 streak of rate hikes kept would-be sellers from replenishing those inventories.
The 2020s have also seen for-sale inventory siphoned from second homes, vacation homes and seasonal homes. Homebuilders, too, have added to for-sale inventory, pushing the total number of homes in the U.S. up 8.7% since the fourth quarter of 2018. But none of these valves have alleviated the shortage of for-sale homes or the resultant high home prices.
The majority of homes that would be up for sale are being held by owners with low mortgage rates who would rather stay put or rent than sell, a phenomenon known as the “mortgage rate lockdown.” Plus, boomers are aging in place for longer, further depleting available housing stock. In fact, the number of owner-occupied homes is at an all-time high, while the percentage of homes that are owner-occupied is well above pre-pandemic levels.
The only apparent change that could induce significant for-sale inventory back into the market, then, is lower mortgage rates. How quickly would sellers return if rates were lower? We got an early test in December and January when the FOMC forecasted rate cuts in 2024.
As rates began falling steeply from October through December and hovered around 6.6% in January, new listings increased on a year-to-year basis in 14 of 15 weeks, according to data from Altos Research, which, like HousingWire, is owned by HW Media.
The data is an encouraging sign that owners with homes to sell will be responsive to mortgage rates, suggesting rate cuts this year could bring about a rapid uptick in homes for sale.
Less encouraging, however, is how soon the market might see rate cuts. Mortgage rates rose above 7% this week for the first time in 2024 following a strong jobs report and comments by Federal Reserve Chairman Jerome Powell that suggested cuts were less imminent than many bond and equity traders had assumed.
One substantial positive story for 2024 is that we have more housing inventory year over year. It’s not a lot, but anything is positive, which I will take. I am a very pro-housing supply person and will feel much better about the housing market when we return to pre-COVID-19 levels for total active listings. However, last week, inventory fell week to week but was up year over year.
Here is a look at last week:
Weekly inventory change (Jan. 19-26): Inventory fell from 503,233 to 497,389
Same week last year (Jan. 20-27): Inventory fell from 466,391 to 457,717
The inventory bottom for 2022 was 240,194
The inventory peak for 2023 is 569,898
For context, active listings for this week in 2015 were 936,253
New listings data
I have been hoping for more new listings data growth in 2024 and even though we’re positive year over year, it’s just not as much as I would like. But at least it’s positive! New listings were trending at the lowest levels ever in 2023, but that should not be the case in 2024. Never forget most sellers are buyers of homes as well, especially if the economy isn’t in a job loss recession. This is a topic I recently discussed on CNBC.
Weekly new listing data for last week over the last several years:
2024: 44,167
2023: 40,767
2022: 40,370
Price cut percentage
Every year, one-third of all homes take a price cut before selling — this is very traditional housing activity. However, when mortgage rates rise and demand gets hit, the price cut percentage data grows year over year.
A perfect example was in 2022: when housing inventory rose faster as demand crashed, the percentage of price cuts rose faster. That increase matched the slope of the inventory increase, and people needed to cut prices to sell their homes. Existing home sales stopped crashing after November of 2022 and this data line has stabilized. As long as this trend continues, we will go below the price cut percentage in 2023 in the spring of this year.
This is the price-cut percentage for the same week over the last few years:
2024: 30.6%
2023: 33%
2022: 19.2 %
Mortgage rates and the 10-year yield
The 10-year yield is the key for housing in 2024. In my 2024 forecast, I have the 10-year yield range between 3.21%-4.25%, with a critical line in the sand at 3.37%. If the economic data stays firm, we shouldn’t break below 3.21%, but if the labor data gets weaker, that line in the sand — which I call the Gandalf line, as in “you shall not pass” — will be tested.
This 10-year yield range means mortgage rates between 5.75%-7.25%, but this assumes spreads are still bad. The spreads have been improving this year so much that if we hit 4.25% on the 10-year yield, we won’t see 7.25% in mortgage rates.
It was a crazy week for the 10-year yield and mortgage rates as it was jobs week and the Federal Reserve held its Federal Open Markets Committee (FOMC) meeting. The 10-year yield started at 4.13%, got as low as 3.81%, and ended the week at 4.02%. Mortgage rates started the week at 6.88%, fell to a low of 6.63%, then shot up to 6.92% on jobs Friday as the labor data came in stronger than anticipated and the 10-year yield spiked higher with mortgage rates, as you can see in the chart below. I also wrote about the jobs report in this article.
I have always stressed that the labor data is more critical for mortgage rates than the inflation growth rate at this stage. The growth rate of inflation is slowing down noticeably. PCE inflation data is running below 2% on the three- and six-month data line trends, but the 10-year yield is still over 4% and we are near 7% mortgage rates. If jobless claims data ran over 323,000 on the four-week moving average, that would be a different story, as the 10-year yield would be much lower.
Purchase application data
Last week was the first negative week in the purchase application data report since rates fell, as we saw a decline of 11% weekly and they were down 20% year over year. Rates had been ticking up a bit higher, but before last week, it didn’t impact the data much. Eight out of the last nine weeks that I have counted (after making some holiday adjustments) are positive, and for 2024, we have two positive prints versus one negative print.
We always want to weigh this index after the second week of January to the first week of May: After May, total volumes traditionally always fall. Much like 2022-203 data, we have a bounce in demand as mortgage rates have fallen. The question is: how will the rest of the heat months act? Last year, rates spiked up higher and then headed toward 8%. This year should be a different story unless the Fed messes it up.
The week ahead
After a crazy week of labor data and remarks by Fed Chair Jerome Powell, we should have a calmer week with some manufacturing data, household credit data and the all-important jobless claims data.
I will be very interested to see how the 10-year yield trades, especially after Powell talks on 60 Minutes Sunday night — that has the potential to be a market mover. Remember, to their credit, the Federal Reserve used the term restrictive policy when the 10-year yield broke over 4.25% and headed toward 5%. Talk is cheap, and I will need to see some action before they want lower yields to ensure they focus on their dual mandate by keeping prices stable and employment high.
Louisville, like the nation, continues to see rising single-family home prices amid low inventory.
Rising interest rates in 2023 sidelined many potential homebuyers and provided little appetite to potential home sellers sitting on much lower interest rates.
Median home prices rose 3.6% last year in the greater Louisville area over 2022, according to the Greater Louisville Association of Realtors. New listings were down 10% and closed sales were down 15%.
“Brutal,” Mike Frank, a senior mortgage broker at Homestretch Mortgage in Louisville, said of 2023. “That was my worst year in the business last year. That’s because everybody was scared because the market turned so fast and rates were at 8%.”
it was likely done raising interest rates after more than a year of hikes meant to slow inflation. It also signaled three rate cuts could be coming in 2024.
Lowering this rate is expected to lead to lower mortgage rates, which hit a 23-year high in October 2023 at nearly 7.8%.
the typical down payment for first-time (8%) and repeat (19%) buyers, according to the National Association of Realtors), a 30-year mortgage with a 7% interest rate would mean monthly payments of about $1,600 (not including homeowner’s insurance or property taxes). Drop the interest rate to 6% and the payment falls to about $1,440.
“It going to get people off of the fence,” Frank said of potential home buyers. “I don’t think (the rates) are gonna go too much lower, but at least it’s gonna get people to go, ‘Ok, maybe this is the time.'”
More homes should hit the market and be sold. But will it balance the market?
Last year marked the worst year on record for home sales in the United States since 1995, according to the National Association of Realtors.
In the greater Louisville area, December 2023 marked the 24th consecutive month of year-over-year declines in existing home sales. Real estate agents compare months year-over-year instead of month-to-month because of seasonal trends in real estate.
Redfin. Nearly 60% have a rate below 4%.
“How do you convince those people that this is a great time to move?” he said.
He anticipates the more rates drop toward the rates that homeowners currently have, the more likely they’ll be to take the rising equity they have in their home and go shopping for a new one.
“If we can close the gap that we have between rates that homeowners got a few years ago versus current market rates, that could help push a few more homes into the market,” he said.
2024 will still be a seller’s market
An imbalance of buyers and available homes has made for a persistent seller’s market, a trend local real estate agents don’t see changing any time soon.
Those in the real estate industry consider three to six months of supply (how long it would take for the existing supply of homes on the market to sell at the current sales pace) to be a “balanced” market favorable to both buyers and sellers.
traced back to the Great Recession when many homebuilders went out of business and those that remained didn’t resume building at previous rates.
Even with a projected drop in interest rates, DeWalt said she’s not anticipating the frenzy of the 2020 and 2021 housing market that saw intense bidding wars and the waiving of contingencies, such as home inspections.
“I don’t see it being as crazy like that this coming year, even with more buyers coming on because of the interest rates,” she said. “They’re not gonna drop that low.”
national Realtors association, in a recent news release. “If price increases continue at the current pace, the country could accelerate into haves and have-nots.”
What does this mean for the real estate market in 2024?
Schuler said he anticipates 2024 will “be a more normal year of what real estate used to be like pre-pandemic,” with its most challenging aspect being expectation management for both buyers and sellers.
“From a home seller standpoint, they’ll need to understand … their property will not sell within three hours,” he said. “All they’ve heard for the past three to four years and all they’ve seen on social media and then the news are homes selling for above asking price, multiple offers, waiving any and every contingency. Whereas now that’s not the case.”
Buyers, meanwhile, may feel buoyed by news of interest rates dropping, but they’re still up against a challenging inventory issue.
“From a home buyer standpoint, they’re still gonna have to understand the fact that inventory levels continue to be historically low,” he said. “So if you have your list of everything you want and need in a home, you’re going to have to be understanding that you probably won’t get all of those items, and chances are you still will be paying 98% of the listing price.”
Even if rates fall, Schuler and Frank encouraged prospective home buyers to analyze their budget and focus on what a potential monthly payment would be.
“We instruct our clients that you live in your payment,” he said. “So try not to just focus so much on the price of the home or the rate. Let’s just look at the monthly payment. Can you comfortably live with this monthly payment? Yes or no?”
Different loan programs have varying parameters that will shape a monthly payment, Frank said, yet another consideration for people as they weigh entering the market.
“We would be naive to think that the rate doesn’t matter because it does,” Frank said. “But there are other factors that really come into play.”
Growth & development reporter Matthew Glowicki can be reached at [email protected], 502-582-4000 or on Twitter @mattglo.
Housing demand is up and it’s time to track the spring housing data and see what the selling season will bring. As I always stress, we are working from the lowest bar ever with demand, so let’s add historical context to the data. But, even with mortgage rates higher this year than last year, demand is rising.
Purchase application data
As we get closer to the end of the first month of 2024, forward-looking purchase application data looks good. Once I make some holiday adjustments, we have eight weeks of a positive trend since mortgage rates fell from the 8% high, and as of now, the slightly higher rates we’ve seen recently haven’t impacted the data just yet. Historically, higher rates negatively impact the weekly purchase application data, and I will look for this over the next few weeks . But it’s very early in the seasonal demand timeframe for housing, so we will take it one week at a time. Purchase apps were up 8% week to week and still down 18% year over year. Last year at this time we got a boost in demand with rates heading toward 6%.
Weekly housing inventory data
Here is a look at last week:
Weekly inventory change (Jan. 19-26): Inventory fell from 506,414 to 503,233
Same week last year (Jan. 20-27): Inventory fell from 472,852 to 466,391
The inventory bottom for 2022 was 240,194
The inventory peak for 2023 is 569,898
For context, active listings for this week in 2015 were 938,453
Last week, we saw active inventory fall slightly week to week. This is common in January. We have had some positive purchase application data recently, and the pending home sales report came in as a beat last week. So, inventory falling looks normal. However, I would like to see the inventory bottom very soon and have a more traditional seasonal increase, rather than having a bottom in March or April.
New listings data
One of the more positive stories about housing inventory recently is that we found a bottom in new listings data last year, and we have been starting to grow new listings data for some time now on a year-over-year basis. It isn’t anything significant, but I will take it after what we have been through the last few years. This is something I talked about on CNBC recently.
Weekly new listing data:
2024: 44,921
2023: 42,843
2022: 47,713
Price cut percentage
Every year, one-third of all homes take a price cut before selling — nothing abnormal about that. However, this data line accelerates higher when mortgage rates rise, and demand gets hit harder. A perfect example was in 2022: when housing inventory rose faster, the percentage of price cuts rose faster as home sales crashed. That increase matched the slope of the inventory increase, and people needed to cut prices to sell their homes.
Toward the end of 2022, that marketplace changed as home sales stopped crashing and the market stabilized. So far this year, the price cut percentage data is still on pace to break below the lows we saw in 2023 in the spring. This data line is very seasonal, so what is occurring now is very normal.
This is the price-cut percentage for the same week over the last few years:
2024: 31.%
2023: 34.%
2022: 20.%
Mortgage rates and the 10-year yield
The 10-year yield is the key for housing in 2024. In my 2024 forecast, I have the 10-year yield range between 3.21%-4.25%, with a critical line in the sand at 3.37%. If the economic data stays firm, we shouldn’t break below 3.21%, but if the labor data gets weaker, that line in the sand — which I call the Gandalf line, as in “you shall not pass” — will be tested.
This 10-year yield range means mortgage rates between 5.75%-7.25%, but this assumes spreads are still bad. The spreads have been improving this year so much that if we hit 4.25% on the 10-year yield, we won’t see 7.25% in mortgage rates.
Last week, we got great news on inflation data, and we have been saying the inflation growth rate has slowed. However, in the economic game of rock-paper-scissors, it’s labor over inflation data, and the jobless claims data are too low, so the Fed hasn’t pivoted yet. Monday’s podcast will go over this topic more clearly.
The 10-year yield started last week at 4.14% and ended the week there. Mortgage rates ranged between 6.875% and 6.95%, ending the week at 6.90%. There is not much movement with the 10-year yield and mortgage rates. It’s wild to think that three to six month PCE inflation data is running below 2%, and mortgage rates are still this high. Remember, the Fed hasn’t pivoted and is still very restrictive.
The week ahead: Jobs, the Fed and home prices
It’s jobs week! So we will get the four labor reports: Job openings, ADP, jobless claims and the BLS jobs report. The Federal Reserve meets this week: we won’t see a rate cut this time but the key is the language they use in this meeting after the recent inflation data we saw. Also, the question and answers should be very interesting. We also have some home price data, which of course is a bit lagging from what is happening currently, but we will get those reports as well.
Weekly inventory change (Jan. 12-19): Inventory rose from 505,223 to 506,414
Same week last year (Jan. 13-20): Inventory fell from 473,406 to 472,852
The inventory bottom for 2022 was 240,194
The inventory peak for 2023 is 569,898
For context, active listings for this week in 2015 were 933,746
Yes, the inventory growth rate slowed weekly, but I will take it! I have been waiting for years for a standard inventory data line to start the year, and so far that’s what I’m seeing. Traditionally, the weekly inventory bottoms out in January or February and rises into the spring. The bottom has been in March and April in the past few years. So far, so good in 2024.
New listings data
While new listings data isn’t growing in significant terms year over year — sorry, silver tsunami crowd — it is showing growth year over year. Most sellers are buyers, and new listing data decreased after rates increased in 2022. So, we are working our way back to normal, and lthough we still have a way to go, but I am happy with this. I talked about this very topic on CNBC a few days ago.
New listings data last week over the past several years:
2024: 44,244
2023: 42,765
2022: 42,620
Price cut percentage
Every year, one-third of all homes take a price cut before selling — nothing abnormal about that. However, this data line accelerates when mortgage rates rise and demand gets hit harder. A perfect example was in 2022: when housing inventory rose faster, the percentage of price cuts rose faster, as home sales crashed. That increase matched the slope of the inventory increase, and people needed to cut prices to sell their homes.
This is not what we’re seeing now, as home sales aren’t crashing like they did in 2022. Sales aren’t growing much, but they’re not crashing as they did in 2022, so we track this data line religiously weekly to get clues, especially with the movement of mortgage rates
This is the price-cut percentage for the same week over the last few years:
2024 31.4%
2023 34.7%
2022 20.6%
Purchase application data
So, the 2024 spring season officially started last week and purchase apps were positive 9% week to week. I believe tracking this data line when mortgage rates are rising is always vital. Of course, we aren’t talking about 8% mortgage rates anymore, but mortgage rates have risen from the recent lows. So far no damage to the data line yet. We have had a positive trend streak since rates have fallen. I exclude all the holiday weeks and the first week of the year, so we have had seven weeks of positive trend and year-to-data we’ve had one positive print.
We just had the existing home sales report that showed a month-to-month decline. One thing to always remember about purchase application data: it looks out 30-90 days before it hits the sales data, so the December report was too soon to account for the full effect of lower mortgage rates and rising application data.
Also, remember we are working from deficient demand levels, so take the bounce in that context. This isn’t like the COVID-19 recovery, which was fast and had a big volume.
Mortgage rates and the 10-year yield
The 10-year yield is the key for housing in 2024. In my 2024 forecast, I have the 10-year yield range between 3.21%-4.25%, with a critical line in the sand at 3.37%. If the economic data stays firm, we shouldn’t break below 3.21%, but if the labor data gets weaker, that line in the sand — which I call the Gandalf line, as in “you shall not pass” — will be tested. This 10-year yield range means mortgage rates between 5.75%-7.25%. This assumes spreads are still bad.
Mortgage rates and the 10-year yield both rose last week. Mortgage rates started the week at 6.77% and finished the week at 6.92%. The 10-year yield started the week around 4%, and intraday almost reached 4.20% before heading lower and ending at 4.13%. One positive story in 2024 is that the spreads are getting better this year, and if we get 4.25% on the 10-year yield, we won’t hit 7.25% in mortgage rates.
Last week, we had some excellent labor data from jobless claims. We also had some Fed presidents push back on rate cuts, regarding how many we will have this year. So, always remember that inflation data has fallen noticeably year over year. However, you want to go with labor data over inflation if you’re looking for lower mortgage rates, especially under 6%.
The growth rate on a three- to six-month Core PCE inflation report could be under 2% in the following report. Even with that reality, which the market knows, the 10-year yield today is still above 4%. This looks right to me with a Hawkish Fed and the jobless claims data being low. The closer we get to my critical level of 323,000 on the four-week moving average, the more the bond market will act differently; the headline data just broke under 200,000 again.
Remember, the Fed hasn’t pivoted: they’re less hawkish with their policy because they over-hiked last year and want to take back some of their rate hikes.
The week ahead: Inflation and housing
We have the all-important PCE inflation report coming out Friday, which can show sub 2% PCE inflation data on the three- and six-month averages. We also have new home sales and pending home sales. Pending home sales should show a bounce from the recent report as we will start to filter the positive purchase apps report. If it doesn’t show growth, it should be the last one before it picks up a bit.